Chapter 2 Financial Statements, Cash Flow, and Taxes
a. 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?
b. What is Computron’s free cash flow (FCF)? What are Computron’s “net uses” of its FCF?
c. Calculate Computron’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 added value?
d. Cochran also has asked you to estimate Computron’s EVA. She estimates that the after-tax cost of capital was 10% in both years.
e. What happened to Computron’s Market Value Added (MVA)?
f. Assume that a corporation has $100,000 of taxable income from operations plus $5,000 of interest income and $10,000 of dividend income. What is the company’s federal tax liability?
g. Assume that you are in the 25% marginal tax bracket and that you have $5,000 to invest. You have narrowed your investment choices down to California bonds with a yield of 7% or equally risky ExxonMobil bonds with a yield of 10%. Which one should you choose and why? At what marginal tax rate would you be indifferent to the choice between California and ExxonMobil bonds?