For the fiscal year ending January 31, 2012, Target’s EBIT was $5,322,* and its tax rate was 34.3 percent. Its short-term borrowings were $3,786, and its long-term debt was $13,697. In addition, the firm’s book value of equity was $15,821. ?
For the fiscal year ending January 31, 2012 (2011), Target had total revenues of (in millions) $69,865 ($67,390) and net earnings of $2,929 ($2,920). Its total assets were $46,630 ($43,705) and its equity was $15,821 ($15,487).
According to its annual report, as of January 31, 2012, Target’s borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent. A research report estimated Target’s cost of capital at 10.5 percent. The firm had interest-bearing debt of $17,483. Moreover, Target’s stock was trading at $50.81 per share, and there were 679.1 million shares outstanding. Now, let’s assume Target’s amount of debt is also a market value estimate of the debt. Let’s also assume the current debt and equity values are at Target’s optimal capital structure.
Target Corporation: EVA
Earlier, you were provided with the information necessary to estimate Target’s operating profit (EBIT) after-tax, also known as NOPAT; invested capital (the book value of equity plus interest-bearing debt); cost of capital; and market value of equity. Based on this information,
1. Estimate Target’s EVA for the year that ended on January 31, 2012.
2. Was Target adding value?
3. Did Target have a positive market value added or MVA?
4. How did Target’s EVA and MVA compare with Walmart’s EVA and MVA?
extra info in regards to Walmart: (in millions)
EVA=7,111
MVA=136,545 n