CANNOT FIGURE OUT HOW TO APPROACH THE FOLLOWING QUESTIONS
1. Use the information below to calculate the EVA for the company.
(Complete problem found in attachment)
Net profit 3.5 million
equity $1 par 350000
retained earnings 250000
bond price 962
coupon (semi-annual) 55
years to maturity 7
tax rate 0.29
stock price 28
One of the bond covenants on Bendix debt stipulates that TIE must not be below 3.5. What is the lowest sales level Bendix could have to meet this goal considering that variable costs are 32% of sales, interest on the bonds is $500,000 and fixed costs are $1 million? Set up an income statement and use goal seek.
The solution has two parts - first one explains how to calculate Economic Value Added (EVA) and the second one on preparing an income statement