Here are simplified financial statements of Phone Corporation from a recent year

Question

Here are simplified financial statements of Phone Corporation from a recent year:
INCOME STATEMENT
(Figures in millions of dollars)    Net sales 13,600     Cost of goods sold 4,310     Other expenses 4,162      Depreciation 2,668     Earnings before interest and taxes (EBIT) 2,460     Interest expense 710     Income before tax 1,750     Taxes (at 30%) 525     Net income 1,225      Dividends 906  
BALANCE SHEET
(Figures in millions of dollars) End of Year Start of Year   Assets       Cash and marketable securities 94   163         Receivables 2,632   2,590         Inventories
212   263         Other current assets 892   957            Total current assets 3,830   3,973         Net property, plant, and equipment 20,023   19,965         Other long-term assets 4,266   3,820            Total assets 28,119   27,758     Liabilities and shareholders Here are simplified financial statements of Phone Corporation from a recent year:

Explanation / Answer

Hi,

Please find the answer as follows:

Economic Value Added = After Tax Interest + Net Income - (Cost of Capital*Total Capitalization)

EVA = 710*(1-.30) + 1225 - 8.8%*(5773 + 11224) = 226.26 millions

Answer is 226.26 million

Notes:

Total Capitalization = Long-Term Debt and Leases Balance + Shareholder's Equity Balance = 5773 + 11224 = 16997

Thanks.

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