Jenny Cochran, a graduate of The University of Tennessee with 4
years of
experience as an equities analyst, was recently brought in as
assistant to the
chairman of the board of Computron Industries, a manufacturer
of computer
components.
During the previous year, Computron had doubled its plant
capacity, opened new
sales offices outside its home territory, and launched an
expensive advertising
campaign. Cochran was assigned to evaluate the impact of the
changes. She began
by gathering financial statements and other data. (Data
Attached)
a. What effect did the expansion have on sales and net
income? What effect
did the expansion have on the asset side of the balance
sheet? What do you
conclude from the statement of cash flows?
b. 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?
c. What is Computron’s free cash flow (FCF)? What are
Computron’s “net
uses” of its FCF?
d. Calculate Computron’s return on invested capital (ROIC).
Computron has a
10% cost of capital (WACC). What caused the decline in the
ROIC? Was it
due to operating profitability or capital utilization? Do you
think
Computron’s growth added value?
e. What is Computron’s EVA? The cost of capital was 10%
in both years.
f. Assume that a corporation has $200,000 of taxable income
from operations.
What is the company’s federal tax liability?
g. Assume that you are in the 25% marginal tax bracket and
that you have
$50,000 to invest. You have narrowed your investment choices
down to
municipal bonds yielding 7% or equally risky corporate bonds
with a yield
of 10%. Which one should you choose and why? At what marginal
tax rate
would you be indifferent?
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Tennessee with 4 years of
experie appeared first on nursing writers.
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