Solution Surname4 Net operating Profit after Taxes NOPAT Earnings before

Solution surname4 net operating profit after taxes

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Solution
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Surname4 Net operating Profit after Taxes (NOPAT) =Earnings before Interest and Taxes (EBIT) (1 - TAX RATE) Net operating Profit after Taxes (NOPAT 2018) = $8720 (1 - 0.4) = $5,232. Net operating Profit after Taxes 2017= $62,730. Free Cash Flow = Net operating Profit after Taxes (NOPAT) - Net Investment In Capital = $ - ($118, 816 - $5, 69,300) = $5232- $5, 59,516 = -$554,284 Question 6: Calculate Computron’s return on invested capital. Computron has a 10% cost of capital (WACC). Do you think Computron’s growth added value? Solution Return on invested capital ROIC = Net operating Profit after Taxes / Total Net Operating Capital. ROIC in 2018 = $5232 / $1, 128,816 = 0.5%. ROIC in the previous year 2017 = 11. 0%. The received ROIC of 0.5% is seen to be a lower than the WACC of 10%. Concerning Investors, it is indisputable that they did not get the required return. Increased growth has an impact of causing a negative Free Cash Flow due to capital investments. It is therefore okay when ROIC >
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Surname5 WACC. For instance, home depot has an increased growth, negative free cash flow and high return on invested capital.. Question 7: Jamison also has asked you to estimate Computron's EVA. She estimates that the after-tax cost of capital was 10 percent in both years. Solution : Economic Value added (EVA) = Net operating Profit after Taxes (NOPAT)- (weighted Average Cost of Capital (WACC)(Capital). Economic Value added (EVA in 2018) = $5,232 - (0.1)($ 1,128,816) = $5,232 - $1, 128, 81.5 = -$107649.5 Economic Value added (EVA in 2017)= $62,730- (0.10)($569,300) = $62730 - $57 = $62673. Question 8: What happened to Computron's market value added (MVA)? Solution Computron's market value added (MVA) = market value of the firm - book value of the firm.
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Surname6 Market value is computed as ; (shares of stock)(price per share) + value of debt. Book Value = Total Common Equity + Value of Debt. In cases wherein, the market value of the debt is almost equal to the book value debt, then the market value is claimed to be the difference between the market value of equity and the book value of equity. Ultimately, an assumption is made on that the market value of debt equals book
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  • Spring '17
  • Dr. Hassan
  • Generally Accepted Accounting Principles

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