Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1) Calculate NOPAT for 2014 and 2015. $45,000 and $50,000 respectively was considered to be a reinvestment for the future growth of the firm. 2)

1) Calculate NOPAT for 2014 and 2015. $45,000 and $50,000 respectively was considered to be a reinvestment for the future growth of the firm.
2) Calculate the relative proportions of debt and equity in tje companys captial structure for 2014 and 2015
3) Calculate the cost of debt and equity if:
Prime rate = 7% per year
Bank charges prime + 2% for commercial loans
the company is in the 40% tax bracket
Ten year notes currently yield 5% and the risk premium of equity is 8%
4) Calculate EVA for both years and explain what it indicates about the company performance.
image text in transcribed
image text in transcribed
Steadfast Manufacturing Company Balance Sheet (in thousands of dollars) 2015 2014 28 879 31 CASO 1121 Cash Accounts Receivable Inventory Prepaid Expenses Other Current Assets Total Current Assets 842 977 47 43 34 2105 34 1931 92 100 20 21 39 Computer Equipment Furniture and Fixtures Motor Vehicles Equipment Other Fixed Assets Total Fixed Assets 34 184 207 29 38 369 395 tips Total Assets 2500 2300 671 645 137 131 Accounts Payable Short-Term Debt Accrued Expenses Total Current Liabilities 250 1058 231 1008 603 Long-Term Debt Total Liabilities 653 1711 1611 33 27 Common Stock Retained Earnings Total Owners' Equity 757 662 689 789 Total Liabilities & Owners' Equity 2500 2300 2 Adlerby the company's capital sources and magnitudes Capital Tot Liabides -Non-interest bearing liabilities. Marketing Outlays, R&D costs and restructuring charges should be treated as capital Investments 3. Determine the company's weighted average cost of capital (WACC). Cost of Equity x Weight of Equity in Capital Base) Cost of Debt Prime Rate + Bank Charges WACC (Cost of Debt x Weight of Debt in Capital Base) Cost of Equitys 10-year bond yield + Risk Premium NOPAT = Net Income + Total Adjustments - Opportunity loss of tax savings 1. Arview the company's income state (add back to NOPAT) rather than expenses. + 4. Calculate NOPAT on Adjustments 5. Calculate EVA EVA - NOPAT - (WACC x $Capital) Table 1 Steadfast Manufacturing Company Income Statement in thousands of dollars) 2015 2014 4500 2813 4700 3008 1504 1396 Sales CGS SG&A Expenses Income from Operations Other Income EBIT 188 291 20 10 311 198 30 35 Interest Expenses Pretax income Taxes (40%) Net Income 276 168 110 67 166 101

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance Principles And Practice

Authors: Denzil Watson, Tony Head

1st Edition

0273630083, 978-0273630081

More Books

Students also viewed these Finance questions

Question

25 State the Central Limit Theorem.

Answered: 1 week ago

Question

2. How is communication defi ned?

Answered: 1 week ago

Question

=+Understand the different types of personal brands in social media

Answered: 1 week ago