{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Corporate Finance - 1 CHAPTER TWO PROBLEMS 1 Last year...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER TWO PROBLEMS 1. Last year Rattner Robotics had $5 million in operating income (EBIT). The company had net depreciation expense of $1 million and an interest expense of $1 million; its corporate tax rate was 40 percent. The company has $14 million in current assets and $4 million in non-interest-bearing current liabilities; it has $15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10 percent. Assume that Rattner’s only non-cash item is depreciation. a. What was the company’s net income for the year? $2.4 million b. What was the company’s net cash flow? $3.4 million c. What was the company’s net operating profit after taxes (NOPAT)? $3.0 million d. What was the company’s operating cash flow? $4.0 million e. If operating capital in the previous year was $24 million, what was the company’s free cash flow (FCF) for the year? $2.0 million f. What was the company’s economic value added? $500,000 2. As an institutional investor paying a marginal tax rate of 46%, your after-tax dividend yield on preferred stock with a 16% before-tax dividend yield would be: 14.9% 3. A 7% coupon bond issued by the state of New York sells for $1,000 and thus provides a 7% yield to maturity. For an investor in the 40% tax bracket, what coupon rate on a Carter Chemical Company bond that also sells at its $1,000 par value would cause the two bonds to provide the investor with the same after-tax rate of return? 11.67% 4. A corporation with a marginal tax rate of 46% would receive what AFTER-TAX YIELD on a 12% coupon rate preferred stock bought at par? Answer: 11.172% 5. You have just received financial information for the past two years for Powell Panther Corporation: 1
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Income Statements Ending December 31 (millions of dollars) 2000 1999 Sales $1,200.0 $1,000.0 Operating Costs (excluding depreciation) 1,020.0 850.0 Depreciation 30.0 25.0 Earnings before interest and taxes $ 150.0 $ 125.0 Less Interest expense 21.7 20.2 Earnings before taxes $ 128.3 $ 104.8 Less taxes (40%) 51.3 41.9 Net income available to common equity $ 77.0 $ 62.9 Common dividends $ 0.605 $ 0.464 Balance Sheets Ending December 31 (millions of dollars) 2000 1999 Cash and marketable securities $ 12.0 $ 10.0 Accounts receivable 180.0 150.0 Inventories 180.0 200.0 Net plant and equipment 300.0 250.0 Total Assets $ 672.0 $ 610.0 Accounts payable $ 108.0 $ 90.0 Notes payable 67.0 51.5 Accruals 72.0 60.0 Long-term bonds $ 150.0 $ 150.0 Common stock (50 million shares) 50.0 50.0 Retained earnings 225.0 208.5 Total liabilities and equity $ 672.0 $ 610.0 a. What is the net operating profit (NOPAT) for 2000? $90,000,000 b. What are the amounts of net operating working capital for 1999 and 2000? $210,000,000 and $192,000,000 c. What are the amounts of total operating capital for 1999 and 2000? $460,000,000 and $492,000,000 d. What is free cash flow for 2000? $58,000,000 e. How much did the firm reinvest in itself over the accounting period? $16,500,000 f. At the present time (12/31/2000), how large a check could the firm write without it bouncing? $12,000,000 6. A firm's operating income (EBIT) was $400 million, their depreciation expense was $40 million, and their increase in net investment in operating capital was $70 million.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern