1. Exhibit 9.19 presents the income statement and balance sheet for HealthCo, a $1210 million revenue healthcare company.

a. Compute NOPLAT, average invested capital, and ROIC for the current and future year. Assume an operating tax rate of 30 percent. If the weighted average cost of capital is 10 percent, is the company creating value? In which year is the firm performing better? Why?

b. Using the reorganized financial statements created in part a, what is the free cash flow for HealthCo in the current year and next year?

c. Many companies hold significant amounts of excess cash, cash above the amount required for daytoday operations. What would happen to the ROIC for HealthCo if you included excess cash in its calculation? Why?

Exhibit 9.19 HealthCo: Income Statement and Balance Sheet $ million Curre Curre nt Curre Curr nt ent Prior nt Prior Income statement ar ear Balance sheet ar 1100 1210 1307 Operating cash 22 24 26 Excess cash and Cost of sales Selling, general, and administrative (871) (915) securities 91 74 83 (165) (182) (196) receivable 220 242 261 330 363 392 663703 763 Depreciation 39) Invento Operating inc 132 121 157 Current assets Property, plant, and Interest expense 15) (15 15) equipment 440 484523 Gain on sale Earnings before axes Equity investments 50 050 96 142 1,33 Total assets 1,153 1,237 6 Taxes 35 29 43 Net income 82 67 99 Accounts payable 303327 Short-term debt 90 90 90 40 Accrued expenses 165 182 196 Current liabilities 530574 613 Long-term debt 210 210210 Common stock Retained earnings 313 353 413 100 100 100 Total Liabilities and equity 1,33 1,153 1,237 6