View the step-by-step solution to:

A. What is Alpha One's NOPAT? Why does NOPAT differ from the earnings after taxes?

A. What is Alpha One's NOPAT? Why does NOPAT differ from the earnings after taxes?

B. Estimate the effective before-tax cost of the long-term debt.

C. Estimate the effective after-tax cost of the bank loan and the long-term debt.

D. Estimate the cost of common equity capital.

E. Determine the financial structure weights for the two interest-bearing debt components and the common equity.

F. What is Alpha One's WACC?

G. Determine the dollar cost of financial capital used.

H. Estimate EVA. Did Alpha One build or destroy economic value in 2013?

Alpha One Software Corporation

Income Statement 2013

Net Sales $1,500,000

Cost of Goods Sold -850,000

Gross Profit 650,000

General & Administrative Expenses -250,000

Marketing -206,000

Depreciation -50,000

Earnings Before Interest and Taxes 144,000

Interest -84,000

Earnings Before Taxes 60,000

Income Taxes (@ 40% rate) -24,000

Earnings After Taxes 36,000

Dividends 0

Retained Earnings for the year $36,000

Alpha One Software Corporation

(Balance Sheet) 2013

Cash $20,000

Accounts Receivable 250,000

Inventories 350,000

Total Current Assets 620,000

Non-current Assets, Net Book Value 480,000

Total Assets $1,100,000

Accounts Payable 125,000

Accrued Liabilities 125,000

Notes Payable (bank loan repayable) 100,000

Total Current Liabilities 350,000

Long-Term Debt 500,000

Common Stock (20,000 shares) 100,000

Retained Earnings 150,000

Total Liabilities & Equity $1,100,000

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