12The balance sheet of a firm is (in millions of $):

Cash 75 Short term debt 135

A/R 300 A/P 230

Inventories 150 Accrued expenses 50

Prepaid expenses 35 Long term debt 100

Net Fixed Assets 565 Owners equity 610

1125 1125

The income statement is (in millions of $):

Sales 1600

Cost of goods sold -1160

Sales and depreciations expense -200

Depreciation -55

Earnings before interest and taxes (EBIT) 185

Net interest expense -45

Earnings before tax (EBT) 140

Income tax expense -40

Earnings after tax (EAT) 100

Dividends 50

Retained earnings 50

First, restructure the balance sheet into a managerial balance sheet. Then answer the questions that follow.

1. Looking at your managerial balance sheet, what WCR do you calculate? (Hint: treat prepaid expenses as A/R and accrued expenses as A/P)

2. Looking at the managerial balance sheet, do you calculate that the Invested Capital (which is equal to the Capital Employed) is $845 million?

3. Looking at the combined debt (short and long term), what average interest rate is the firm paying on debt?

4. Calculate the firms ROIC before taxes

5. What is the firms operating profit margin?

6. What is the firms tax effect ratio?

7. What is the self-sustainable growth rate?

8. If the firms WACC is 6% and it can borrow money at 2% and

It has projects it can do that are projected to return 8% should it do those projects assuming they are feasible and it wants to raise the ROE?