Ryker, your newly appointed boss, has tasked you with evaluating the following f
ID: 2820616 • Letter: R
Question
Ryker, your newly appointed boss, has tasked you with evaluating the following financial data for Western Gas & Electric Co. to determine how Western G&E'S value has changed over the past year. The investment firm for which you work will make a positive (or"buy") recommendation to its investing clients if Western G&E's value has increased over the past year, a neutral (or "hold recommendation if the value has remained constant, or a negative (or "sellr) recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Western Gas & Electric Co. Western Gas & Electric Co. Balance Sheet $4,312,500 $3,750,000 Cash and cash equivalents 1,309,219 1,458,843 1,389,375 $3,740,625 $3,562,500 $534,375 582,187 Liabilities and Equity: 10% $349,312 785,531 1,711,336 Total current liabilities Addition to retained earnings Excludes depreciation and amortization 2,315,625 $3,740,625 $3,562,500 To fadilitate your analysis, complete the following table, and use the results to answer the related questions. Round your percentage change answers to twa Company Growth and Performance M Using the change in Western G&E'S EVA as the decision criterion, which type of investment recommendation Year Year ch $4,312,500 $3,750,000 Netcash fiow (NCF) Net operating working capital (NOWC) which of the following statements are correct? Check a $1,355,977 Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) western G&E's net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly thanits 18.63% managing its costs while achieving the reported growth in sales. Other things remaining constant, either ewent should increase the value of the firm Western G&E'S NCF is calculated by adding its MVA Market value of equity Market Value Added (MVA) $3,678,281 Investor-supplied operating capital is recorded as Net operating profit after-tax (NOPAT) Investor-supplied operating capital $426,937 average cost of capital For any given year, one way to compute Western Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) G&E's EVA is as the difference between its NOPAT (such as $326,250) and the product of its operating capital ($2,680,7B1) and its weighted average cost of capital ($7.30). Other things remaining constant, Western G&E'S 14.78% EVA will increase when its ROIC exceeds itsExplanation / Answer
With regards to last question, out of 5 statements, 1st, 3rd and 5th are correct and it can be veriffied from the above table as well.
Metric Year 2 Year 1 Percentage Change Calculations Sales 4,312,500 3,750,000 15.00% Net Income 349,312 270,000 29.37% Net cash flow 500,250 401,250 24.67% Net Income + Depreciation (non cash expense) Net operating working capital 1,355,977 1,291,406 5.00% 2,173,125-534,375-347,344 Earning per share 1.33 1.08 23.15% EPS = 349,312/261844 Dividend per share 0.80 0.65 23.08% DPS = 162,000/249375 Book value per share 5.00 5.00 0% BVPS = 1,309,219/261,844 Cash flow per share 1.91 1.61 18.63% 401250/249375 & 500,250/261844 Market price per share 21.23 19.75 7.49% Market value of equity 5,558,948 4,925,156 12.87% 21.23*261844 Book value of equity 1,309,219 1,246,875 5.00% Market value added 4,249,729 3,678,281 15.54% Market value of equity-book value of equity NOPAT 426,937 326,250 30.86% EBIT (1-t) Investor supplied working capital 27,165 25,807 5.00% Increase in working capital i.e. 2,281,782-2,173,125-1,711,336+1,629,844 Weighted average cost of capital 7.98% 7.30% 9.32% Dollar cost of capital 298,502 260,063 14.78% Total debt and equity multiplied by WACC Return on invested capital 9.34% 7.58% 24.65% Net Income / Total debt and equity Economic value added (EVA) 202,386 9,938 1936.59% Net cash flow - dollar cost of capital This is a strong buy since there is a huge growth in EVA.Related Questions
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