12. The calculation of a firm's Market Value Added (MVA) and Economic Value Added ANA (EVA) Ryker, your newly appointed boss, has tasked you with evaluating the following financial data for Galaxy Corp, to determine how Galaxy'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 Galaxy's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative for "sell") recommendation if the value os 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. Galaxy Corp Income Statement January 1 - December 31, Year 2 Year 2 Sales $4,887,500 Expenses 3,910,000 EBITDA 977,500 Depreciation and amortization expense 171,063 EBIT 806,437 Interest expense 146,625 EBT 659,812 Tax expense (40%) 263,925 Net income $395,887 Year 1 $4,250,000 3,485,000 765,000 148,750 616,250 106,250 510,000 204,000 $306,000 Year 1 $242,250 807,500 1,413,125 2,462,875 1,574,625 $4,037,500 Galaxy Corp. Balance Sheet December 31, Year 2 Assets: Year 2 Cash and cash equivalents $254,363 Receivables B47,875 Inventory 1,483,781 Current assets 2,586,019 Net fixed assets 1,653,356 Total assets 54,239,375 Liabilities and Equity Accounts payable $635,906 Accruals 413,339 Notes payable 890,269 Total current liabilities 1,939,514 Long-term debt 816,080 Total liabilities 2,755,594 Common stock ($1 par) 296,756 Retained earnings 1,187,025 Total equity 1,483,781 Total debt and equity $4,239,375 Common dividends Addition to retained earnings *Excludes depreciation and amortization $237,532 $158,355 $183,600 $122,400 $605,625 393,656 847,875 1,847,156 777,219 2,624,375 282,625 1,130,500 1,413,125 $4,037,500 Shares outstanding Weighted average cost of capital 296,756 7.98% 282,625 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions. Round your percentage change answers to two decimal places Ch 06: Assignment - Accounting for Financial Management To facilitate your analysis, complete the following table, and use the results to answer the related questions. Round your percentage change answers to two decimal places. Company Growth and Performance Metrics Metric Year 1 Year 2 General Metrics $4,887,500 $395,887 Using the change in Galaxy's EVA as the decision Percentage criterion, which type of investment recommendation Change should you make to your clients? A sell recommendation A hold recommendation A buy recommendation $4,250,000 $306,000 $454,750 $1,536,774 Sales 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 $1.08 $0.80 $5.00 0.00% 18.63% $19.75 $21.73 MVA Calculation 15.53% Market value of equity Book value of equity Market Value Added (MVA) Which of the following statements are correct? Check all that apply For any given year, one way to compute Galaxy's EVA is as the difference between its NOPAT (such as $369,750) and the product of its operating capital ($3,038,219) and its weighted average cost of capital ($7.30). Galaxy's NCF is calculated by adding its annual depreciation and amortization expense to the corresponding year's EBITDA Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments The percentage change in Galaxy's MVA indicates that its management has increased the firm's value. The percentage change in Galaxy's EVA indicates that management has increased its value $1,483,781 $1,413,125 $4,168,719 EVA Calculation $483,862 5.00% 7.98% 7.30% 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) 14.78% 24,65% $229,370