Lotus LTD is a company that manufactures shoes. It has to decide if the project it...

 

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Lotus LTD is a company that manufactures shoes. It has to decide if the project it is about to embark on will add economic value to the company. The management decides to use EVA to determine it. So it is trying to look at different components that are distributing to its success. The following information used is on the table below: Current liabilities [non- interest bearing]S 18,500 Current Assets Long term liabilities Equity Accumulated Depreciation Operating Expenses $ 45,600 S 82,500 S 110,700 $ 14,000 S 32,600 Tax rate Gross profit Depreciation Expense 19% $63.000 $3,500 Interest on debt Research & Development Training cost of employees Government Bond Rate Market Risk Market index at start Market index at the end Hint : Be careful when using the depreciation provided. Note: Rescarch & Development expenses and training expenses are already included in operating expenses S 5,000 $ 9,100 S 11,500 4.2% 1.3 24600 27100 REQUIRED 1. Calculate EBIT (operating income) and tax expenses 2. Calculate net Plant, Property and Equipment (PPE] 3. Calculate WACCC( weighted average cost of capital) 4. Calculate the Total Capital employed [TCE]. S. Calculate EVA [Economic Value Added] 6. Why is the WACC of a company using debt less than the cost of equity 7. What does a negative EVA mean to a firm and why is it disadvantageous to the firm? [ marks 40] 4/5 Lotus LTD is a company that manufactures shoes. It has to decide if the project it is about to embark on will add economic value to the company. The management decides to use EVA to determine it. So it is trying to look at different components that are distributing to its success. The following information used is on the table below: Current liabilities [non- interest bearing]S 18,500 Current Assets Long term liabilities Equity Accumulated Depreciation Operating Expenses $ 45,600 S 82,500 S 110,700 $ 14,000 S 32,600 Tax rate Gross profit Depreciation Expense 19% $63.000 $3,500 Interest on debt Research & Development Training cost of employees Government Bond Rate Market Risk Market index at start Market index at the end Hint : Be careful when using the depreciation provided. Note: Rescarch & Development expenses and training expenses are already included in operating expenses S 5,000 $ 9,100 S 11,500 4.2% 1.3 24600 27100 REQUIRED 1. Calculate EBIT (operating income) and tax expenses 2. Calculate net Plant, Property and Equipment (PPE] 3. Calculate WACCC( weighted average cost of capital) 4. Calculate the Total Capital employed [TCE]. S. Calculate EVA [Economic Value Added] 6. Why is the WACC of a company using debt less than the cost of equity 7. What does a negative EVA mean to a firm and why is it disadvantageous to the firm? [ marks 40] 4/5

Answer rating: 100% (QA)

Calculation of EBIT Gross Profit 63000 Less Depreciation 3500 Less Operating expenses 32600 Less Operating income 26900 calculation of tax expenses Op... View the full answer