11. The calculation of a firm's Market Value Added (MVA) and EconomicValue Added (EVA) Taj, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton Corp. to determine how Atherton's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Atherton's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Atherton Corp. Income Statement January 1 - December 31, Year 2 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT Tax expense (40%) Net income Common dividends Addition to retained earnings Excludes depreciation and amortization Year 2 Year 1 $8,400,000 $8,000,000 6,720,000 6,560,000 $1,680,000 $1,440,000 294,000 280,000 $1,386,000 $1,160,000 252,000 200,000 $1,134,000 $960,000 453,600 384,000 $680,400 $576,000 $408,240 $345,600 $272,160 $230,400 Atherton Corp. Balance Sheet December 31, Year 2 Year 2 Year 1 $638,400 $456,000 2,128,000 1,520,000 3,724,000 2,660,000 $6,490,400 $4,636,000 4,149,600 2,964,000 $10,640,000 $7,600,000 Assets: Cash and cash equivalents Receivables Inventory Current assets Net fixed assets Total current assets Liabilities and Equity: Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock ($1 par) Retained earnings Total equity Total liabilities and equity Shares outstanding Weighted average cost of capital $1,596,000 1,037,400 2,234,400 $4,867,800 2,048,200 $6,916,000 744,800 2,979,200 $3,724,000 $10,640,000 744,800 $1,140,000 741,000 1,596,000 $3,477,000 1,463,000 $4,940,000 532,000 2,128,000 $2,660,000 $7,600,000 532,000 7.98% 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use minus (-) sign.) Company Growth and Performance Metrics Metric Year 2 Year 1 Percentage Change General Metrics Sales $8,400,000 $8,000,000 % Net income $680,400 $576,000 % $ $856,000 % $3,857,000 $ % $ $1.08 % Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $0.55 $ % $ $5.00 0.00% -18.63% $21.73 $19.75 % Metric Year 2 Year 1 Percentage Change MVA Calculation Market value of equity 54.04% Book value of equity $3,724,000 $2,660,000 % Market Value Added (MVA) $ $7,847,000 % Metric Year 2 Year 1 Percentage Change EVA Calculation $831,600 $ % Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital $ $ 40.00% 7.98% 7.30% Dollar cost of capital $ 53.04% % % -14.63% Return on invested capital (ROIC) Economic Value Added (EVA) $ 192,959 % Using the change in Atherton's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A sell recommendation O A hold recommendation O A buy recommendation 11. The calculation of a firm's Market Value Added (MVA) and EconomicValue Added (EVA) Taj, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton Corp. to determine how Atherton's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Atherton's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Atherton Corp. Income Statement January 1 - December 31, Year 2 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT Tax expense (40%) Net income Common dividends Addition to retained earnings Excludes depreciation and amortization Year 2 Year 1 $8,400,000 $8,000,000 6,720,000 6,560,000 $1,680,000 $1,440,000 294,000 280,000 $1,386,000 $1,160,000 252,000 200,000 $1,134,000 $960,000 453,600 384,000 $680,400 $576,000 $408,240 $345,600 $272,160 $230,400 Atherton Corp. Balance Sheet December 31, Year 2 Year 2 Year 1 $638,400 $456,000 2,128,000 1,520,000 3,724,000 2,660,000 $6,490,400 $4,636,000 4,149,600 2,964,000 $10,640,000 $7,600,000 Assets: Cash and cash equivalents Receivables Inventory Current assets Net fixed assets Total current assets Liabilities and Equity: Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock ($1 par) Retained earnings Total equity Total liabilities and equity Shares outstanding Weighted average cost of capital $1,596,000 1,037,400 2,234,400 $4,867,800 2,048,200 $6,916,000 744,800 2,979,200 $3,724,000 $10,640,000 744,800 $1,140,000 741,000 1,596,000 $3,477,000 1,463,000 $4,940,000 532,000 2,128,000 $2,660,000 $7,600,000 532,000 7.98% 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use minus (-) sign.) Company Growth and Performance Metrics Metric Year 2 Year 1 Percentage Change General Metrics Sales $8,400,000 $8,000,000 % Net income $680,400 $576,000 % $ $856,000 % $3,857,000 $ % $ $1.08 % Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $0.55 $ % $ $5.00 0.00% -18.63% $21.73 $19.75 % Metric Year 2 Year 1 Percentage Change MVA Calculation Market value of equity 54.04% Book value of equity $3,724,000 $2,660,000 % Market Value Added (MVA) $ $7,847,000 % Metric Year 2 Year 1 Percentage Change EVA Calculation $831,600 $ % Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital $ $ 40.00% 7.98% 7.30% Dollar cost of capital $ 53.04% % % -14.63% Return on invested capital (ROIC) Economic Value Added (EVA) $ 192,959 % Using the change in Atherton's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A sell recommendation O A hold recommendation O A buy recommendation