[i].
Barnes Brothers has the following data for the year ending 12/31/10: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders’ equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes’ weighted average cost of capital is 10%. What is its economic value added (EVA)?
a.
$399.11
b.
$420.11
c.
$442.23
d.
$465.50
e.
$490.00
(Comp: 2.3,2.5) Income statement: net cash flow C K
[ii].
Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?
a.
$3,284.75
b.
$3,457.63
c.
$3,639.61
d.
$3,831.17
e.
$4,032.81
(Comp: 2.3,2.7) Income statement:free cash flow C K
[iii].
Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate?
a.
$1,770.00
b.
$1,858.50
c.
$1,951.43
d.
$2,049.00
e.
$2,151.45
Hard:
(2.8) EVA C K
[iv].
HHH Inc. reported $12,500 of sales and $7,025 of operating costs (including depreciation). The company had $18,750 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 9.5%, and the federal-plus-state income tax rate was 40%. What was HHH’s Economic Value Added (EVA), i.e., how much value did management add to stockholders’ wealth during the year?
a.
$1,357.13
b.
$1,428.56
c.
$1,503.75
d.
$1,578.94
e.
$1,657.88
(Comp: 2.3,2.7) Changes in net income and NCF C K
[v].
Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year’s data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725. By how much will the depreciation change cause the firm’s net after-tax income and its net cash flow to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.
a.
-$383.84; $206.68
b.
-$404.04; $217.56
c.
-$425.30; $229.01
d.
-$447.69; $241.06
e.
-$471.25; $253.75
[vi].
(Comp: 2.3,2.7) Income stmt: FCF vs. net income C K
Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm’s net income exceed its free cash flow?
a.
$673.27
b.
$708.70
c.
$746.00
d.
$783.30
e.
$822.47
