($ in millions) At the end of fiscal 2011 Estée Lauder had 204 million shares ou
ID: 2770278 • Letter: #
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
c. The economic value added(EVA) = Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted Average Cost of Capital (WACC)
NOPAT = EBIT *(1-tax rate)
EBIT = 1071, tax rate = 331/998 = 0.3317
Hence NOPAT = 1071*(1-331/998) = 715.788
Invested capital in net assets = (2534 + 2871)/2 =2702.50
WACC = 0.08
Hence EVA = 715.75 -2702.50*0.08 = 499.58
d. Rerturn on capital = (Operating profit - taxes)/ Invested Capital = (1071 -331)/2702.50 = 0.2738 = 27.38%
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