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Corporate Finance Problem Set 1

# Corporate Finance Problem Set 1 - 1 EP Enterprises has the...

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1. EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have? NOPAT = operating income x (1 - Tax Rate). Sales \$1,800.00 Costs 1,400.00 Depreciation 250.00 EBIT \$ 150.00 Interest expense 70.00 EBT \$ 80.00 Taxes (40%) 32.00 Net income \$ 48.00 a. \$81.23 b. \$85.50 c. \$90.00 d. \$94.50 e. \$99.23 2. Tibbs Inc. had the following data for the year ending 12/31/07: Net income = \$300; Net operating profit after taxes (NOPAT) = \$400; Total assets = \$2,500; Short-term investments = \$200; Stockholders' equity = \$1,800; Total debt = \$700; and Total operating capital = \$2,300. What was its return on invested capital (ROIC)? 3. Aziz Industries has sales of \$100,000 and accounts receivable of \$11,500, and it gives its customers 30 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant? 4. Heaton Corp. sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were \$425,000, and its year-end receivables were \$60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments.

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