a. Assuming the expansion was effective Jan. 1, 2010, the 2010 income statement indicates an approximate increase in sales of $2.4M. However, the income statement also indicates a Net Loss in 2010 of ($95K) compared to Net Income of $88K in 2009. Total Assets increased approximately $1.4M. The major drivers causing the increase are fixed assets of $711K, inventory of $572K, and accounts receivable of $280K. Being that assets have to equal liabilities and equity the effect is the same with an approximate increase of $1.4M. Major drivers causing the increase for liabilities and equity are notes payable of $520K and long-term debt of $680K.
b. Computron Industries (CI) had to finance the expansion. The financing activities are what kept them cash positive in 2010. In 2011, CI will need to focus on improving cash flow from the operation of the ...view middle of the document...
d. Computron’s NOPAT is $10,464 ($17,440*1-40%). The operating current assets are cash, inventory, and accounts receivable used in operations. The operating current liabilities are accounts payable and accruals resulting from operations. Computron has $1,317,842 (=7,282+632,160+1,287,360-324,000-284,960) net operating working capital and total net operating capital is the same since Computron does not have any plant or equipment specified in their balance sheet.
e. Computron’s free cash flow is ($513,578) (=10,464-524,042). Since there is a negative free cash flow Computron will not be able to use anything to pay off debt, dividends, buy investments, etc.
f. ROIC = NOPAT/ TOTAL NET OPERATING CAPITAL
NOPAT= EBIT* (1-TAX RATE)
ROIC (2009) =$ 125,460/ $1,138,600 = 11%
ROIC (2010) = $10,464/ $2,257,632 = 0.5%
Computron’s growth has not added value, after the growth the ROIC dropped from 11% in 2009 to 0.5% in 2010. Meaning the investors did not receive the return they wanted in 2010 after the changes have occurred.
g. EVA = NOPAT - (WACC)(CAPITAL)
EVA 2009 = $125,460–(10%)$(1,138,600) = $11,600
EVA 2010 = $10,464-(10%)($2,257,632) = $-215,299
h. MVA = Market Value of Stock – Total Equity
MVA 2009 = $850,000-$663,768= $186,232
MVA 2010 = $600,000-$557,632= $42,368
Between the years of 2009 to 2010 Computron’s market value added (MVA) decreased.
i. Tax Liability = $100,000 (operating income) + $5,000 (Interest income) + $3,000 (Dividend income = $10,000*30%) = $108,000 of taxable income
Used chart on PG. 71 (Chapter 2)
Taxes = $22,250 + 0.39(108,000 - $100000) = $25,370 (Tax Liable)
j. California = 0.07($5,000) - $0 = 350
Exxon = 0.10($5,000) – (.10)($5,000)(.25) = 375
I would choose ExxonMobil because based on the after tax return a $5,000 invest with ExxonMobil will give me a $25 advantage than with the investment into the California bonds. The decision would be indifferent at a 30% marginal tax rate.