A firm with manufacturing facilities is currently running at 40% capacity. Its B/S is summarized as follows (in millions of dollars):

A/R	2.0
Inventory	8.0
Plant Assets	22.0
Financial Liabilities	8.0
Common Equity	24.0

The firm is generating sales of $64.0 million from its current production, earning an after-tax operating profit margin of 7.5%. [NOPAT/Sales = 7.5%]

Required:

a. Calculate the firms return on net operating assets, RNOA = NOPAT/NOA, its A/R turnover, its INV turnover = Sales/Inventory, its turnover on plant assets = Sales/Plant assets, its total assets turnover = Sales/Total assets.

b. The firm has a required rate of return of 10% for its operations [WACC = 10%]. Value the firm (its core operations) using the formula:

Value of the firm = (NOA + [RNOAWACC]NOA) / WACC

where NOA its net operating assets.

c. Suppose the firm were to sell at 80% capacity of its plant with no change in selling prices or profit margins (and so earned revenues of $64*2=$128 million). A/R and Inventory

would increase to maintain the same A/R and Inventory turnovers as before. Calculate the value of the firm. Identify the aspects of the operations that have

increased the value of the firm over that calculated in (b).