($ in millions) At the end of fiscal 2011 Estée Lauder had 204 million shares ou

Question

($ in millions)

At the end of fiscal 2011 Estée Lauder had 204 million shares outstanding21 with a share price of $50.0. The company’s weighted-average cost of capital was about 8%.

Calculate the economic value added. (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

Calculate the return on capital. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The following table gives abbreviated balance sheets and income statements for Estée Lauder Companies.

Explanation / Answer

1 .Econimic value added = Net operating after tax – ( capital invested * WACC)

Net Operting Profit after Tax = Net Income + Intrest Expenses x (1 – Tax Rate)

i.e

667+73 x (1- 33.16)

NOPAT = 494.616

Capital Invested = fixed asset + non cash working capital

Non cash working capital =current asset – current liablity –cash

i.e

Fixed Asset =1161

Current Asset =3885

Current Liablity =1961

Cash =1343

Non Cash Working Capital = 3885 –(1961+1343)

i.e =581

Capital Invested = 1161+581

i.e =1742

         

WACC= 8% or .08

EVA= 494.616-(1742x.08)

I.e = $ 355.256

2.

earning befor intrest n taxes 1071 intrest expenses 73 balance sheet items c.asset 3885 cash 1343 fixed aset 1161 current liab 1961 other income tax rate 33.16% after tax cost of capita 8% calculator result net income 667.06 (EBIT-intrest Expenses )x(1-Tax Rate) net operating profit after tax 494.61 Net income + Intrest Expenses x (1- Tax Rate) non cash working capital 581 Current Asset - (Current Liablity + Cash) invested capital 1742 Fixed Asset + Non Cash Working Capital return on invested capital % 28.39323 Net Operating Profit after taxes / invested Capital

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