($ in millions) At the end of fiscal 2011 Estée Lauder had 197 million shares ou
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Question
($ in millions)
At the end of fiscal 2011 Estée Lauder had 197 million shares outstanding21 with a share price of $105. The company’s weighted-average cost of capital was about 10%.
Calculate the market value added. (Enter your answer in millions.)
Calculate the market-to-book ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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
Answer (a)
Market Value Added = $ 17,254 Million
Answer (b)
Market-to-book ratio = 9.04
Answer (c)
Economic Value Added = $ 395.7 Million
Answer (d)
Return on Capital Employed = 26.91%
Average Shareholder equity = (Shareholder equity at beginning of year + shareholder equity end of year)/2
Average Shareholder equity = (1948+2629)/2 = 4577/2 = $ 2288.50 Million
Average Long term debt = (1205 + 1080)/2 = $ 1142.50 Million
Average Capital contributed by stake holders = Average Shareholder Equity + Average long term debt
Average Capital contributed by stake holders = 2288.50 + 1142.50 = $ 3,431 Million
Total Market Value = Share price * Total number of shares outstanding = $ 105 * 197 Million
= $ 20,685 Million
Market Value Added (MVA) of the firm = Total Market Value – Average capital contributed
= $ 20,685 Million - $ 3,431 Million = $ 17,254 Million
Average Shareholder equity = $ 2288.50 Million
Number of outstanding shares = 197 Million
Book Value per share = Average Shareholder equity / Number of outstanding shares
= $ 2288.50 Million / 197 Million = $ 11.61675
Market-to-book ratio = Current share price / Book Value per share = $ 105 / $ 11.61675 = 9.03867
= 9.04 (rounded off)
EBIT = $ 1089 Million
Tax Rate = Taxes /Taxable Income = 322/1025 = 0.314146 or 31.41%
Net Operating Profit after Taxes (NOPAT) = EBIT * (1-Tax rate) = $ 1089 Million * (1-0.314146)
= $ 1089 Million * 0.685854
= $ 746.8946 Million
Average debt due for repayment = (138+23)/2 = $ 80.5 Million
Invested Capital = Short Term Debt + Long Term Debt + Shareholders equity
= Average Debt due for repayment + Average long term debt + Average shareholder equity
= $ 80.5 Million + $ 1142.50 Million + $ 2288.50 Million
= $ 3,511.50 Million
Weighted Average Cost of Capital = 10% or 0.10
Economic Value Added (EVA) = NOPAT - Invested Capital * Weighed Average cost of Capital
= $ 746.8946 Million - $ 3511.50 Milliion * 0.10
= $ 746.8946 Million - $ 351.15 Million
= $ 395.7446 Million or $ 395.7 Million
Average Total Assets = (6274+ 5336)/2 = 11610 / 2 = $ 5805 Million
Average total current Liabilities = (1572+1943)/2 = 3515/2 = $ 1757.50 Million
Capital Employed = Average Total Assets - Average total current liabilities
= $ 5805 Million - $ 1757.50 Million = $ 4047.50 Million
EBIT = $ 1089 Million
Return on Capital Employed = $ 1089 Million / $ 4047.50 Million = 0.26905 or 26.91% (rounded off)
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