a. What effect did the expansion have on sales and net income? What effect did t
ID: 2613379 • Letter: A
Question
a. What effect did the expansion have on sales and net income? What effect did theexpansion have on the asset side of the balance sheet? What effect did it have onliabilities and equity?
b. What do you conclude from the statement of cash flows?
d What is Computron ’ s net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?
e. What is Computron ’ s free cash flow (FCF)? What are Computron ’ s “ net uses ” of its FCF?
f. Calculate Computron ’ s return on invested capital. Computron has a 10% cost of capital (WACC). Do you think Computron ’ s growth added value? Copyright | CENGAGE Learning | Corporate Finance | Edition 5 | yangwz0214@163.com | Printed from www.chegg.com
2012 2013 Balance Sheets Assets Cash Short-term investments Accounts receivable Inventories S 9,000 S7,282 20,000 632,160 715200 187.360 $1,124,000 $1,946,802 491,000 1,202,950 146,200263,160 344800 939.790 $1,468,800 $2,886,592 48,600 351,200 Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilties and Equity Accounts payable Notes payable Accruals S 145,600 S 324,000 720,000 284,960 S 481,600 S1,328,960 323,432 1,000,000 460,000 97,632 S 663,768 557632 $1,468,800 $2,886,592 200,000 136,000 Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings 460,000 203,768 Total equity Total liabilities and equityExplanation / Answer
Answer:a Sales increased by over by over $2.4 million, but net income fell by over $190,000. Assets almost doubled. Debt and funds provided by suppliers increased, but retained earnings fell due to the year’s loss.
Answer:b
Net CF from operations = -$503,936, because of negative net income and increases in working capital. The firm spent $711,950 on FA. The firm borrowed heavily and sold some short-term investments to meet its cash requirements. Even after borrowing, the cash account fell by $1,718.
Answer:d
NOPAT = EBIT(1 - Tax rate)
NOPAT13 = $17,440(1 - 0.4)
= $10,464.
NOPAT12 = $125,460.
Operating current assets are the CA needed to support operations. OP CA include: cash, inventory, receivables. OP CA exclude: short-term investments, because these are not a part of operations. Operating current liabilities are the CL resulting as a normal part of operations. OP CL include: accounts payable and accruals. OP CA exclude: notes payable, because this is a source of financing, not a part of operations.
NOWC = operating CA – operating CL
NOWC13 = ($7,282 + $632,160 + $1,287,360) - ($324,000 + $284,960)
= $1,317,842.
NOWC12 = $793,800.
Total operating working capital = NOWC + net fixed assets.
Operating capital in 2013= $1,317,842 + $939,790
= $2,257,632.
Operating capital in 2012 = $1,138,600
Answer:e
FCF = NOPAT - Net investment in capital
= $10,464 - ($2,257,632 - $1,138,600)
= $10,464 - $1,119,032
= -$1,108,568.
FCF is the amount of cash available from operations for distribution to all investors (including stockholders and debtholders) after making the necessary investments to support operations. A company’s value depends upon the amount of FCF it can generate.
1. Pay interest on debt.
2. Pay back principal on debt.
3. Pay dividends.
4. Buy back stock.
5. Buy nonoperating assets (e.g., marketable securities, investments in other companies, etc.)
Answer:f
ROIC = NOPAT / Total NET operating capital.
ROIC13 = $10,464 / $2,257,632
= 0.5%.
ROIC12 = 11.0%.
The ROIC of 0.5% is less than the WACC of 10%. Investors did not get the return they require. Note: high growth usually causes negative FCF (due to investment in capital), but that’s ok if ROIC > WACC. For example, home depot has high growth, negative FCF, but a high ROIC.
EVA = NOPAT- (WACC)(Capital).
EVA13 = $10,464 - (0.1)($2,257,632)
= $10,464 - $225,763
= -$215,299.
EVA12 = $125,460 - (0.10)($1,138,600)
= $125,460 - $113,860
= $11,600.
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