1. Over the years, Masterson Corporation’s stockholders have provided $34,000,000 of capital when they purchased new issues of stock and allowed management to retain some of the firm’s earnings. The firm now has 2,000,000 shares of common stock outstanding, and the shares sell at a price of $28 per share. How much value has Masterson’s management added to stockholder wealth over the years, that is, what is Masterson’s MVA? 2. Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the firm’s EVA? 3. Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars) are shown. 2018 2017 Cash $102,850 $ 89,725 Accounts receivable 103,365 85,527 Inventories 38,444 34,982 Total current assets $244,659 $210,234 Net fixed assets 67,165 42,436 Total assets $311,824 $252,670 Accounts payable $ 30,761 $ 23,109 Accruals 30,477 22,656 Notes payable 16,717 14,217 Total current liabilities $ 77,955 $ 59,982 Long-term debt 76,264 63,914 Total liabilities $154,219 $123,896 Common stock 100,000 90,000 Retained earnings 57,605 38,774 Total common equity $157,605 $128,774 Total liabilities and equity $311,824 $252,670 a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given this information, construct the firm’s 2018 income statement. b. Construct the statement of stockholders’ equity for the year ending December 31, 2018, and the 2018 statement of cash flows. c. Calculate 2017 and 2018 net operating working capital (NOWC) and 2018 free cash flow (FCF). Assume the firm has no excess cash. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effect would this have on taxes paid by the company’s shareholders? e. Assume that the firm’s after-tax cost of capital is 10.5%. What is the firm’s 2018 EVA? f. Assume that the firm’s stock price is $22 per share and that at year-end 2018 the firm has 10 million shares outstanding. What is the firm’s MVA at year-end 2018?
1. Over the years, Masterson Corporation’s stockholders have provided $34,000,000 of
capital when they purchased new issues of stock and allowed management to retain some
of the firm’s earnings. The firm now has 2,000,000 shares of common stock outstanding,
and the shares sell at a price of $28 per share. How much value has Masterson’s management added to stockholder wealth over the years, that is, what is Masterson’s MVA?
2. Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the firm’s EVA?
3. Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars) are shown.
2018 2017
Cash $102,850 $ 89,725
Accounts receivable 103,365 85,527
Inventories 38,444 34,982
Total current assets $244,659 $210,234
Net fixed assets 67,165 42,436
Total assets $311,824 $252,670
Accounts payable $ 30,761 $ 23,109
Accruals 30,477 22,656
Notes payable 16,717 14,217
Total current liabilities $ 77,955 $ 59,982
Long-term debt 76,264 63,914
Total liabilities $154,219 $123,896
Common stock 100,000 90,000
Total common equity $157,605 $128,774
Total liabilities and equity $311,824 $252,670
a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the
corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given
this information, construct the firm’s 2018 income statement.
b. Construct the statement of
and the 2018 statement of cash flows.
c. Calculate 2017 and 2018 net operating working capital (NOWC) and 2018
flow
d. If Laiho increased its dividend payout ratio, what effect would this have on corporate
taxes paid? What effect would this have on taxes paid by the company’s shareholders?
e. Assume that the firm’s after-tax cost of capital is 10.5%. What is the firm’s 2018 EVA?
f. Assume that the firm’s stock price is $22 per share and that at year-end 2018 the firm
has 10 million shares outstanding. What is the firm’s MVA at year-end 2018?
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