11. The calculation of a firm's Market Value Added (MVA) and EconomicValue Added (EVA) Alexis, your newly appointed boss, has tasked you with evaluating the following financial data for Allied Biscuit Co to determine how Allied Biscuit'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 Allied Biscuit's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative cor "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. Allied Biscuit Co. Income Statement January 1 - December 31, Year 2 Year 2 Year 1 $1,000,000 Sales Expenses $1,050,000 840,000 $210,000 320,000 $180,000 35,000 EBITDA Depreciation and amortization expense EBIT Interest expense EBT 36,750 $173,250 31,500 $145,000 25,000 $141,750 Tax expense (40%) Net income Common dividends Addition to retained earnings 56,700 $85,050 $120,000 48,000 $72,000 $51,030 $34,020 $43,200 $28,800 Allied Biscuit Co. Income Statement January 1 - December 31, Year 2 Year 2 Year 1 Sales $1,050,000 $1,000,000 Expenses EBITDA 840,000 $210,000 820,000 $180,000 Depreciation and amortization expense 36,750 35,000 EBIT $173,250 $145,000 Interest expense 31,500 25,000 EBT $141,750 $120,000 Tax expense (40%) 56,700 48,000 Net income $85,050 $72,000 Common dividends $51,030 Addition to retained earnings Excludes depreciation and amortization $43,200 $28,800 $34,020 Allied Biscuit Co. Balance Sheet December 31, Year 2 Assets: Year 2 Year 1 Cash and cash equivalents $59,850 $57,000 Receivables 199,500 190,000 Inventory 349,125 332,500 Current assets $608,475 $579,500 Net fixed assets 389,025 370,500 Total current assets $997,500 $950,000 Liabilities and Equity: Accounts payable $149,625 $142,500 Accruals 97,256 92,625 Notes payable 209,475 199,500 Total current liabilities $456,356 $434,625 Long-term debt 192,019 182,875 Total liabilities $648,375 $617,500 Common stock ($1 par) 69,825 66,500 Retained earnings 279,300 266,000 Total equity $349,125 $332,500 Total liabilities and equity $997,500 $950,000 Shares outstanding 69,825 66,500 Weighted average cost of capital 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 a minus (-) sign.) Company Growth and Performance Metrics Metric Year 2 Percentage Change General Metrics Year 1 Sales % $1,050,000 $85,050 $1,000,000 $72,000 $107,000 96 $ % $361,594 $ % $1.08 % Net income 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 $0.73 $ $5.00 0.00% $ 8.07% $21.73 $19.75 Metric Year 2 Year 1 Percentage Change MVA Calculation Market value of equity Book value of equity Market Value Added (MVA) 15.5396 $349,125 % $332,500 $980,875 Year 2 Year 1 Percentage Change Metric EVA Calculation Het operating profit after-tax (NOPAT) Innali $103,950 $980,875 Market Value Added (MVA) Year 2 Year 1 Percentage Change % $103,950 5.00% Metric EVA Calculation Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) 7.98% 7.30% 14.78% $ % 13.8096 $44,061 $ % Using the change in Allied Biscuit's EVA as the decision criterion, which type of investment recommendation should you make to your clients? A buy recommendation O A sell recommendation A hold recommendation Which of the following statements are correct? Check all that apply. For any given year, one way to compute Alied Biscuit's EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital. Alied Biscuit's NCF is calculated by adding its annual interest expense to the corresponding year's net income. Other things remaining constant, Allied Biscuit's EVA will increase when its ROIC exceeds its WACC. The percentage change in Allied Biscuit's MVA indicates that its management has increased the firm's value. An Increase in the number of common shares outstanding must increase the market value of the firm's equity