Win Tech Motors Case In 2013, five retired software developers opened an auto de

Question

Win Tech Motors Case In 2013, five retired software developers opened an auto dealership in Redmond, Washington, which they named WinTechMotors. The company specialized in high-end sports and luxury autos and has one of the largest inventories of used Porsches on the West Coast. (more than 50 Porsches are always in stock.) The inventory is listed on the Company's Web site, and the Company has shipped cars to Web customers as far away as Florida, although most customers are located in Washington, Oregon and California. Comparative income statements and balance sheets are presented in the next tab. As indicated, the company has sales of $15,120,000 in 2014   (a 25 percent increase over 2013) and net income of $326,950 (a 91 % increase over 2013).   The owners were delighted with the company's financial performance and quite proud that they had developed a successful business. However, at a recent meeting, their company's external accountants introduced them to the concept of EVA and noted that, with   an assumed weighted average cost of capital of 12 percent, their EVA had been negative in both years. Accordingly, the owners have contracted with an EVA consultant to help them with financial planning. Required a. Calculate EVA for 2014 and 2013 using a cost of capital of 12%. No adjustments for accounting distortions are needed. Explain why sales and income have increased substantially in 2014 and yet EVA is negative.      What is not captured in income that is   captured in EVA? Win Tech Motors Case In 2013, five retired software developers opened an auto dealership in Redmond, Washington, which they named WinTechMotors. The company specialized in high-end sports and luxury autos and has one of the largest inventories of used Porsches on the West Coast. (more than 50 Porsches are always in stock.) The inventory is listed on the Company's Web site, and the Company has shipped cars to Web customers as far away as Florida, although most customers are located in Washington, Oregon and California. Comparative income statements and balance sheets are presented in the next tab. As indicated, the company has sales of $15,120,000 in 2014   (a 25 percent increase over 2013) and net income of $326,950 (a 91 % increase over 2013).   The owners were delighted with the company's financial performance and quite proud that they had developed a successful business. However, at a recent meeting, their company's external accountants introduced them to the concept of EVA and noted that, with   an assumed weighted average cost of capital of 12 percent, their EVA had been negative in both years. Accordingly, the owners have contracted with an EVA consultant to help them with financial planning. Required a. Calculate EVA for 2014 and 2013 using a cost of capital of 12%. No adjustments for accounting distortions are needed. Explain why sales and income have increased substantially in 2014 and yet EVA is negative.      What is not captured in income that is   captured in EVA?

Explanation / Answer

Sales for 2014 = $15120000

Sales for 2013 = $12096000

Net Income for 2014 = $326950

Net Income for 2013 = $171178

EVA for 2014:

= [326950 / 15120000 x 100] - 12

= -9.84

EVA for 2013:

= [171178 / 12096000 x 100] - 12

= -10.58

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