10. eva tree analysis of financial statement (deb sahoo)

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10. eva tree analysis of financial statement (deb sahoo)

  1. 1. ($ in Millions) Market Data Income Taxe Rate, T 40% Rate of Return of a Market Index, Rm 12% Risk-Free Rate, Rf 7% Beta Coefficient 1.10 Before-Tax Cost of Debt 8% Percentage of Equity in Capital Structure 60% Percentage of Debt in Total Capital Structure 40% Sales & Variable Cost of Goods Sold Product Line 1 Product Line 2 Product Line 3 Product Line 4 Product Line 5 Product Line 6 Total Unit sales price $9.00 $15.00 $20.00 $30.00 $49.00 $59.00 $182.00 Variable manufactoring cost per unit $5.00 $8.00 $14.00 $10.00 $20.00 $20.00 Contribution Margin per Unit $4.00 $7.00 $6.00 $20.00 $29.00 $39.00 Expected Unit Sales in (Millions) 2.00 3.00 4.00 5.00 6.00 7.00 27.00 Sales in $ $18.00 $45.00 $80.00 $150.00 $294.00 $413.00 $1,000.00 Variable manufactoring cost $10.00 $24.00 $56.00 $50.00 $120.00 $140.00 $400.00 Total Contribution Margin $8.00 $21.00 $24.00 $100.00 $174.00 $273.00 $600.00 Fixed Overhead Expenses Selling Overhead Administration Overhead Factory Overhead Total Cost Center 1 $200.00 $0.00 $0.00 $200.00 Cost Center 2 $0.00 $100.00 $0.00 $100.00 Cost Center 3 $0.00 $0.00 $100.00 $100.00 Cost Center 4 $0.00 $0.00 $0.00 $0.00 Cost Center 5 $0.00 $0.00 $0.00 $0.00 Cost Center 6 $0.00 $0.00 $0.00 $0.00 Cost Center 7 $0.00 $0.00 $0.00 $0.00 Cost Center 8 $0.00 $0.00 $0.00 $0.00 Cost Center 9 $0.00 $0.00 $0.00 $0.00 Cost Center 10 $0.00 $0.00 $0.00 $0.00 Cost Center 11 $0.00 $0.00 $0.00 $0.00 Cost Center 12 $0.00 $0.00 $0.00 $0.00 Cost Center 13 $0.00 $0.00 $0.00 $0.00 Total $200.00 $100.00 $100.00 $400.00 Assets Current Assets: Cash & Cash Equivalent $100.00 Accounts Receivable $100.00 Material Inventory $100.00 Finished Good Inventory $100.00 Total Current Assets $400.00 Fixed Assets: Land $100.00 Building and Equipment $700.00 Accumulted Deprreciation ($200.00) Total Fixed Assets $600.00 Interest Free Liabilities: Trade liability $100.00 Advances received $50.00 Accrual for Income Taxes $50.00 Interest Free Liabilities $200.00 Income Statement Sales $1,000.00 Less Variable Cost : Cost of goods sold $350.00 Contribution Margin $650.00 Less Fixed Cost: Factory overhead $120.00 SG&A $260.00 Net operating income (=EBIT) $270.00 Less: Interest expense $25.60 Net income before taxes $244.40 Less: Income taxes $97.76 Net income $146.64 EVA TREE ANALYSIS OF FINANCIAL STATEMENTS | Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |
  2. 2. COST OF CAPITAL TREE Rate of Return of a Market Index 12.00% Market Risk Premium 5.00% Company Risk Premium Risk-Free Rate 5.50% 7.00% Cost of equity Beta Coefficient 13.00% 1.10 Weighted Cost of Equity Risk-Free Rate 7.80% 7.00% Percentage of Equity in Capital Structure 60.00% WACC Before-Tax Cost of Debt 9.72% 8.00% After-Tax Cost of Debt Before-Tax Operating Profit in % 4.80% 100.00% Weighted Cost of Debt After-Tax Operating Profit in % 1.92% 60.00% % of Total Capital Supplied by Debt Income Taxe Rate 40.00% 40.00% - + x x x + x x EVA VALUE DRIVER TREE Sales $1,000.00 Contribution $650.00 EBIT Variable Cost of Goods Sold $270.00 $350.00 NOPAT Overhead (Fixed Cost) $162.00 $380.00 Profit Margin (1-Rate of Income Tax) 16.2% 0.6 RONA Sales 20.3% $1,000.00 Fixed Assets Operating Profit Total Net Asset Turnover Assets $600.00 $162.00 1.25 $1,000.00 EVA Net Assets Net Assets $84.24 $800.00 $800.00 Current Assets Cost of Capital Interest Free Liabilities $400.00 $77.76 $200.00 WACC 9.7% - - + x - : : x x x - Before interest
  3. 3. RONA 20.25 % Operating Profit - Cost of Capital = EVA = $84.24 WACC 9.72 % Operating Profit = $162 Cost of Capital= $77.76 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.00 $900.00 WACC/RONA Net Assets EVA-Chart Operating Profit Cost of Capital

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