Corporate Finance, Module 24: “Financial analysis”

Homework Assignment: EVA and Profitability measures

(The attached PDF file has better formatting.)

A firm’s December 31, 20XX, financial statements show the following figures:

    December 31, 20XX-1    December 31, 20XX
Current assets    44    54
Fixed assets    85    88
Current liabilities    26    33
Long-term debt    43    43


In 20XX, the firm’s earnings before interest and taxes are 51, its weighted average cost of capital is 9.1%, the interest rate on its long-term debt is 7.25%, and the corporate tax rate is 21%. The firm does not raise new equity in 20XX.

In this illustration, fixed assets include all non-current assets, long-term debt includes all non-current liabilities, market values equal book values for all items, and the tax expense is pre-tax income times the tax rate.

A.    What are total assets for 20XX (beginning of the year and end of the year)?
B.    What are total liabilities for 20XX (beginning of the year and end of the year)?
C.    What is shareholders equity for 20XX (beginning of the year and end of the year)?
D.    What is total capital for 20XX (beginning of the year and end of the year)?
E.    What is the interest expense for 20XX?
F.    What is the tax expense for 20XX?
G.    What is the net income for 20XX?
H.    What is the return on assets for 20XX?
I.    What is the return on capital for 20XX?
J.    What is the return on equity for 20XX?
K.    What is the economic value added for 20XX?

Verify your solutions with the practice problems for this module.