The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

Question

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Answer 1

Question

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

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Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $10 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $8 million next year. Assets Current assets Fixed assets Total assets Liabilities and Equity Additional funds needed Current liabilities $2,000,000 4,000,000 Long-term debt Equity $6,000,000 Total liabilities and equity $1,500,000 1,500,000 3,000,000 $6,000,000 If all assets and current liabilities are expected to shrink with sales, what amount of additional funds will Gyp Sum need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)

Answer 2

Question

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

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Answer 3

Question

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Expert Solution & Answer

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Answer 4

Question

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Expert Solution & Answer

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Answer 5

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Answer 6

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

Answer 7

Chapter 7, Problem 26SP

a)

Summary Introduction

To determine: The net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years and FCF growth rate for Year 3 and the way it compares with the growth rate in sales and ROIC for Year 3 and the way it compare with the WACC 15%.

Answer 8

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

Answer 9

b)

Summary Introduction

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

Answer 10

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

Answer 11

c)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

Answer 12

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Answer 13

d)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Answer 14

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Answer 15

e)

Summary Introduction

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

Answer 16

Expert Solution & Answer

Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. 7 - Two investors are evaluating General Electric’s...Ch. 7 - A bond that pays interest forever and has no...Ch. 7 - Explain how to use the free cash flow valuation...Ch. 7 - Ogier Incorporated currently has $800 million in...Ch. 7 - EMC Corporations current free cash flow is 400,000...Ch. 7 - Prob. 3P Ch. 7 - JenBritt Incorporated had a free cash flow (FCF)...Ch. 7 - Blunderbluss Manufacturing’s balance sheets report...Ch. 7 - Thress Industries just paid a dividend of $1.50 a...Ch. 7 - Boehm Incorporated is expected to pay a 1.50 per...

Solution Summary: The author compares the value of operations at Year 3 and the current value at 807.119. The growth in sales after year 1 is 7%, but the ROIC is lower than the WACC.

To discuss: The value of operations at Year 3 and current value of operations and compare the value of operations at Year 0 with total net operating working capital at Year 3 and explain its relationship.

To discuss: The new value of operations and whether it raises or declines and the reason for its change.

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

To discuss: The new value of operations and whether it raises or declines and the reason for its change if the CRR reduced to 60%.

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Chapter 7 Solutions