Chapter_08_Solutions_ABP_Revision_march 28_ 9pm

Chapter_08_Solutions_ABP_Revision_march 28_ 9pm - Valuation...

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Valuation Measuring and Managing the Value of Companies 5th Edition Chapter 8 Solutions Analyzing Performance and Competitive Position Version 1.0 April 1, 2010 Revised by Annette Poulsen March 26 2011 Revised march 28 9 pm
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Chapter 8 Questions 1–3 JetCo Gulf Question 1 Revenues 600.0 800.0 Note an error in the prompt for question 1. JetCo's operating profit is $100 million. Then it says Operating profit 100.0 100.0 Gulf's "NOPLAT" is $100 million. NO -- they mean Gulf's OPERATING PROFIT is also $100 million Operating taxes (25.0) (25.0) So -- NOPLAT 75.0 75.0 The ROIC of Gulf Aviation is 12.5 percent versus only 9.4 percent for JetCo. Since both companies have a cost of capital of 8 percent, Gulf Aviation is generating a higher economic Invested capital 800.0 600.0 spread. Gulf Aviation also has a higher economic profit, $27 million versus only $11 Goodwill 500.0 million for JetCo. Capital with goodwill 800.0 1,100.0 Question 2 JetCo has an after-tax return on sales of 12.5 percent versus only 9.4 percent for Gulf Aviation. Competitive benchmarking JetCo has a capital turnover ratio of 0.75 – versus 1.33 – for Gulf Aviation. Key ratios
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Chapter_08_Solutions_ABP_Revision_march 28_ 9pm - Valuation...

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