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You are an industry analyst for the telecom sector. You are analyzing financial reports from two companies: Talker Corp. and MobileTalk Inc. Corporate tax for
You are an industry analyst for the telecom sector. You are analyzing financial reports from two companies: Talker Corp. and MobileTalk Inc. Corporate tax for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you need for the analysis: Data Collected Talker Corp. MobileTalk Inc. EBIT $164,000 $60,000 Depreciation $54,120 $19,800 Total operating capital $720,000 $374,400 Net investment in operating capital $360,000 $156,000 WACC 11.85% 11.88% In your analysis, you want to look for several characteristicsone of them being the return on invested capital (ROIC). Using the information available, complete the following statements: The net operating profit after tax (NOPAT) for Talker Corp. is w , whereas the NOPAT for MobileTalk Inc. is v Talker Corp. has a free cash flow of w , whereas, MobileTalk Inc. has a free cash flow of w o, Talker Corp. has a W return on invested capital than MobileTalk Inc. has. Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true? () If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth. () If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth
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