Practice Exercise on Lecture 3

Practice Exercise on Lecture 3 - b What was the company’s...

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Practice Exercise on Lecture 3 ST- 1: Net Income, Cash Flow and EVA Last year Cole Furnaces had $5,000,000 in operating income (EBIT). The company had a net depreciation expense of $1,000,000 and an interest expense of $1,000,000; its corporate tax rate was 40%. The company has $14,000,000 in operating current assets and $4,000,000 in operating current liabilities; it has $15,000,000 in net plant and equipment. It estimates that it has an after-tax cost of capital of 10%. Assume that Cole’s only non-cash item was depreciation. a. What was the company’s net income for the year?
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Unformatted text preview: b. What was the company’s net cash flow? c. What was the company’s net operating profit after taxes (NOPAT)? NOPAT = EBIT(1-T) = 5,000,000(1-0.4) = $3,000,000 d. Calculate net operating working capital and total net operating capital for the current year. NOWC = 14,000,000 – 4,000,000 = $10,000,000 TNOC = NOWC + fixed assets = 10,000,000 + 15,000,000 = $25,000,000 e. If total net operating capital in the previous year was $24,000,000, what was the company’s free cash flow (FCF) for the year? f. What was the company’s Economic Value Added (EVA)?...
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