a graduate of The University of Tennessee with $4$ years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.

During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.Chapter $2$ Mini Case

Situation

Jenny Cochran, a graduate of The University of Tennessee with $4$ years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.

During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.

$\backslash$table$[[$Computron$\text{'}$s Balance Sheets $($Millions of Dollars$)],[,2018,2019],[$Assets$],[$Cash and equivalents,$$,60,$$$,50],[$Short$-$term investments,$100,10],[$Accounts receivable,$400,520],[$Inventories$,620,820],[$Total current assets,$$,1,180,$$$,1,400],[$Gross fixed assets,$$,3,900,$$$,4,820],[\{$

$\backslash$table$[[$Less: Accumulated depreciation$],[$Net fixed assets$]]\},1,000,1,320$

Questions:

What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity?

What do you conclude from the statement of cash flows?

What is free cash flow? Why is it important? What are the five uses of FCF$?$

What is Computron$$s net operating profit after taxes $($NOPAT$)?$ What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?

What is Computron$$s free cash flow $($FCF$)?$ What are Computron$$s $$net uses$$ of its FCF$?$

Calculate Computron$$s return on invested capital $($ROIC$).$ Computron has a $10\%$ cost of capital $($WACC$).$ What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think Computron$$s growth added value?

Cochran also has asked you to estimate Computron$$s Economic Value Added $($EVA$).$ She estimates that the after$-$tax cost of capital was $10\%$ in both years.

What happened to Computron$$s Market Value Added $($MVA$)?$