$5.$ Evaluating free cash flows and return on invested capital

You$$re an industry analyst for the telecom sector, and have been analyzing financial reports from two companies: CellT Corp. and Talk$2$Me Inc. The corporate tax rate for both firms is $35\%.$ Your associate analyst has calculated and compiled, in the following table, a list of important figures you$$ll probably need for the analysis:

Data Collected

CellT Corp.

Talk$2$Me Inc.

EBIT $$346,800$ $$142,800$

Depreciation $$121,380$ $$49,980$

Total operating capital $$1,468,800$ $$609,960$

Net investment in operating capital $$612,000$ $$265,200$

WACC $12\mathrm{.}28\%17\mathrm{.}35\%$

In your analysis, you want to look for several characteristics$$one of them being the return on invested capital $($ROIC$).$

Using the information available, complete the following statements:

$$ CellT Corp. has a free cash flow than Talk$2$Me Inc. does.

$$ The net operating profit after tax $($NOPAT$)$ for CellT Corp. is $,$ whereas the NOPAT for Talk$2$Me Inc. is $.$

$$ CellT Corp. has a return on invested capital of $,$ whereas, Talk$2$Me Inc. has a return on invested capital of $.$

Your inference from the analysis is that both firms are in a high$-$growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true?

If ROIC is less than the rate of return that investors require, which is the weighted average cost of capital $($WACC$),$ then the firm is adding value.

If ROIC is greater than the rate of return that investors require, which is the weighted average cost of capital $($WACC$),$ then the firm is adding value.