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? What is Computron's free cash flow (FCF)? What are Computron's “net uses" of its FCF? а. С.
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? What is Computron's free cash flow (FCF)? What are Computron's “net uses" of its FCF? а. С.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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| Computron's Income Statement | ||||||||||||||||
| 2019 | 2020 | |||||||||||||||
| INCOME STATEMENT | ||||||||||||||||
| Net sales | $ 2,059,200 | $ 3,500,640 | ||||||||||||||
| Cost of Goods Sold (Except depr. and amort.) |
|
$ 2,988,000 | ||||||||||||||
| Other Expenses | $ 204,000 | $ 432,000 | ||||||||||||||
| $ 11,340 | $ 70,176 | |||||||||||||||
| Total Operating Costs | $ 1,933,740 | $ 3,490,176 | ||||||||||||||
| Earnings before interest and taxes (EBIT) | $ 125,460 | $ 10,464 | ||||||||||||||
| Less interest | $ 37,500 | $ 105,600 | ||||||||||||||
| Pre-tax earnings | $ 87,960 | $ (95,136) | ||||||||||||||
| Taxes (40%) | $ 35,184 | $ (38,054) | ||||||||||||||
| Net Income | $ 52,776 | $ (57,082) | ||||||||||||||
| Dividends | $ 13,200 | $ 6,600 | ||||||||||||||
| Tax rate | 40% | 40% | ||||||||||||||
| Computron's |
||||||||||||||||
| 2019 | 2020 | |||||||||||||||
| Assets | ||||||||||||||||
| Cash and equivalents | $ 5,400 | $ 4,369 | ||||||||||||||
| Short-term investments | $ 29,160 | $ 12,000 | ||||||||||||||
| $ 210,720 | $ 379,296 | |||||||||||||||
| Inventories | $ 429,120 | $ 772,416 | ||||||||||||||
| Total current assets | $ 674,400 | $ 1,168,081 | ||||||||||||||
| Gross fixed assets | $ 294,600 | $ 721,770 | ||||||||||||||
| Less: |
$ 87,720 | $ 157,896 | ||||||||||||||
| Net plant and equipment | $ 206,880 | $ 563,874 | ||||||||||||||
| Total assets | $ 881,280 | $ 1,731,955 | ||||||||||||||
| Liabilities and equity | ||||||||||||||||
| Accounts payable | $ 87,360 | $ 194,400 | ||||||||||||||
| Notes payable | $ 120,000 | $ 432,000 | ||||||||||||||
| Accruals | $ 81,600 | $ 170,976 | ||||||||||||||
| Total current liabilities | $ 288,960 | $ 797,376 | ||||||||||||||
| Long-term bonds | $ 194,059 | $ 600,000 | ||||||||||||||
| Common Stock | $ 276,000 | $ 276,000 | ||||||||||||||
| $ 122,261 | $ 58,579 | |||||||||||||||
| Total Equity | $ 398,261 | $ 334,579 | ||||||||||||||
| Total Liabilites and Equity | $ 881,280 | $ 1,731,955 | ||||||||||||||
| Computron's Statement of |
||||||||||||||||
| 2020 | ||||||||||||||||
| Operating Activities | ||||||||||||||||
| Net Income before preferred dividends | $ (57,081.60) | |||||||||||||||
| Noncash adjustments | ||||||||||||||||
| Depreciation and amortization | $ 70,176.00 | |||||||||||||||
| Due to changes in |
||||||||||||||||
| Change in accounts receivable | $ (168,576.00) | |||||||||||||||
| Change in inventories | $ (343,296.00) | |||||||||||||||
| Change in accounts payable | $ 107,040.00 | |||||||||||||||
| Change in accruals | $ 89,376.00 | |||||||||||||||
| Net cash provided by operating activities | $ (302,361.60) | |||||||||||||||
| Investing activities | ||||||||||||||||
| Cash used to acquire fixed assets | $ (427,170.00) | |||||||||||||||
| Change in short-term investments | $ 17,160.00 | |||||||||||||||
| Net cash provided by investing activities | $ (410,010.00) | |||||||||||||||
| Financing Activities | ||||||||||||||||
| Change in notes payable | $ 312,000.00 | |||||||||||||||
| Change in long-term debt | $ 405,940.80 | |||||||||||||||
| Payment of cash dividends | $ (6,600.00) | |||||||||||||||
| Net cash provided by financing activities | $ 711,340.80 | |||||||||||||||
| Net change in cash and equivilents | $ (1,030.80) | |||||||||||||||
| Cash and securities at beginning of the year | $ 5,400.00 | |||||||||||||||
| Cash and securities at end of the year | $ 4,369.20 | |||||||||||||||
| Corporate Tax Rates | ||||||||||||||||
| If a corporation's taxable income is between: | It pays this amount on the base of the bracket: | Plus this percentage on the excess over the base | ||||||||||||||
| (1) | (2) | (3) | (4) | |||||||||||||
| $0 | $50,000 | $0 | 15.0% | |||||||||||||
| $50,000 | $75,000 | $7,500 | 25.0% | |||||||||||||
| $75,000 | $100,000 | $13,750 | 34.0% | |||||||||||||
| $100,000 | $335,000 | $22,250 | 39.0% | |||||||||||||
| $335,000 | $10,000,000 | $113,900 | 34.0% | |||||||||||||
| $10,000,000 | $15,000,000 | $3,400,000 | 35.0% | |||||||||||||
| $15,000,000 | $18,333,333 | $5,150,000 | 38.0% | |||||||||||||
| $18,333,333 | and up | $6,416,667 | 35.0% |
Transcribed Image Text:Question 1
'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)
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?
What is Computron's free cash flow (FCF)? What are Computron's "net uses" of its FCF?
d. Calculate Çomputron'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
а.
С.
added value?
What is Computron's EVA? The cost of capital was 10% in both years.
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?
е.
f.
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