Below are the last three years' financial statements of Sentec Inc., a distributor of electrical fixtures.

a. Compute Sentec's working capital requirement (WCR) on December 31, 2008, 2009, and 2010.
b. Prepare Sentec Inc.'s managerial balance sheets on December 31, 2008, 2009, and 2010.
c. Sentec's weighted average cost of capital was stable at 11 percent over the three-year period from 2008 to 2010. How much value was created or de stroyed by Sentec in each one of the three years?
d. What are the likely causes of value creation and destruction at Sentec?
e. In 2010, firms in the same business sector as Sentec Inc. have an average col lection period of thirty days, an average payment period of thirty-three days, and an inventory turnover of eight times. Suppose that Sentec Inc. had managed its operating cycle like the average firm in the sector. On December 31, 2010, what would its WCR have been? Its managerial balance sheet? How much more value would Sentec have created?

Transcribed Image Text:

Income Statements (in thousands) 2010 Cost of goods sold Selling, general, and administrati Depreciation expense 2 ve expenses Earnings before interest and tax Net interest expense Income tax expense tax Balance Sheets (in thousands) December 31, December 31, December 31, $ 300 1 Accounts reccivable assets Short-term debt Accounts payable Accrued expenses 0 0 Owners' equity Total liabilities and owners' equity