The following income statements and other information are available for the Schn

Question

The following income statements and other information are available for the Schneider Company:

Calculate EVA for 2014. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes them over three years, including the year they are incurred. For external reporting purposes, research and development is expensed in the year incurred, as indicated in the income statements above. (Round answer to the nearest whole dollar, e.g. 5,725.)

2014 2013 2012 Sales $387,100,000 $244,200,000 $194,200,000 Less cost of goods sold 212,905,000 117,216,000 93,216,000 Gross margin 174,195,000 126,984,000 100,984,000 Less:       Selling and administrative costs 27,097,000 24,420,000 19,420,000       Research and development 15,484,000 12,210,000 9,710,000 Income from operations 131,614,000 90,354,000 71,854,000 Less taxes on income 39,484,200 27,106,200 21,556,200 Net income $92,129,800 $63,247,800 $50,297,800 Total assets $713,200,000 $663,400,000 $446,700,000 Noninterest-bearing current liabilities 143,100,000 11,100,000 98,780,000 Cost of capital 12% 12% 12%

Explanation / Answer

The formula for EVA is:

EVA = Net Operating Profit After Tax - (Capital Invested x WACC)

Net operating income after taxes = $92,129,800

Cost of capital = 12%

Capital Invested = Net assets – Current Liabilities

Capital Invested = $713,200,000 - $143,100,000 = $570,100,000

EVA = $92,129,800 – ($570,100,000 * 12%)

EVA = $92,129,800 - $68,412,000

EVA = $23,717,800

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