Atherton Corp. Atherton Corp. Income Statement Balance Sheet January 1 - December 31, Year 2 December 31, Year 2 Year 2 Year 1 Assets: Year 2 Year 1 Cash and cash equivalents $6,000,000 $427,500 Sales $6,900,000 $342,000 Expenses1 5,520,000 4,920,000 Receivables 1,425,000 1,140,000 Inventory 2,493,750 1,995,000 1,380,000 EBITDA 1,080,000 Current assets Depreciation and amortization expense 210,000 4,346,250 3,477,000 241,500 Net fixed assets 2,778,750 2,223,000 1,138,500 870,000 EBIT Interest expense 207,000 150,000 Total assets $7,125,000 $5,700,000 Liabilities and Equity: 931,500 720,000 EBT Accounts payable Tax expense (40%) $1,068,750 $855,000 372,600 288,000 Accruals 694,688 555,750 Net income $558,900 $432,000 Notes payable 1,496,250 1,197,000 Common dividends $335,340 $259,200 Total current liabilities 3,259,688 2,607,750 Addition to retained earnings $223,560 $172,800 Long-term debt 1,371,563 1,097,250 1Excludes depreciation and amortization Total liabilities 4,631,250 3,705,000 Common stock ($1 par) 498,750 399,000 Retained earnings 1,596,000 1,995,000 Total equ 2,493,750 1,995,000 $7,125,000 $5,700,000 Total debt and equity Shares outstanding 498,750 399,000 Weighted average cost of capital 7.98% 7.30% Using the change in Atherton's EVA as the decision Company Growth and Performance Metrics criterion, which type of investment recommendation Percentage should you make to your clients? Change Metric Year 2 Year 1 General Metrics O A buy recommendation O A hold recommendation $6,900,000 $6,000,000 Sales 15.00% O A sell recommendation 29.38% Net income $558,900 $432,000 Net cash flow (NCF) $642,000 Which of the following statements are correct? Check al Net operating working capital (NOWC) $2,582,812 that apply. Earnings per share (EPS) $1.12 $1.08 3.76% O An increase in the number of common shares 3.50% Dividends per share (DPS) $0.65 $0.67 outstanding must increase the market value of the firm's equity. $5.00 Book value per share (BVPS) $5.00 0.00% Cash flow per share (CFPS) 0.00% O Other things remaining constant, Atherton's EVA Market price per share $19.75 $22.22 will increase when its ROIC exceeds its WACC. O For any given year, one way to compute Atherton's EVA is as the difference between its MVA Calculation Market value of equity 40.63% NOPAT (such as $522,000) and the product of its Book value of equity $2,493,750 $1,995,000 operating capital ($4,289,250) and its weighted Market Value Added (MVA) $5,885,250 average cost of capital ($7.30). EVA Calculation O Atherton's NCF is calculated by adding its annual $683,100 Net operating profit after-tax (NOPAT) depreciation and amortization expense to the Investor-supplied operating capital 25.00% corresponding year's EBITDA. O The percentage change in Atherton's MVA Weighted average cost of capital 7.98% 7.30% indicates that its management has increased the Dollar cost of capital 36.64% firm's value. Return on invested capital (ROIC) 4.68% Economic Value Added (EVA) $255,210 Atherton Corp. Atherton Corp. Income Statement Balance Sheet January 1 - December 31, Year 2 December 31, Year 2 Year 2 Year 1 Assets: Year 2 Year 1 Cash and cash equivalents $6,000,000 $427,500 Sales $6,900,000 $342,000 Expenses1 5,520,000 4,920,000 Receivables 1,425,000 1,140,000 Inventory 2,493,750 1,995,000 1,380,000 EBITDA 1,080,000 Current assets Depreciation and amortization expense 210,000 4,346,250 3,477,000 241,500 Net fixed assets 2,778,750 2,223,000 1,138,500 870,000 EBIT Interest expense 207,000 150,000 Total assets $7,125,000 $5,700,000 Liabilities and Equity: 931,500 720,000 EBT Accounts payable Tax expense (40%) $1,068,750 $855,000 372,600 288,000 Accruals 694,688 555,750 Net income $558,900 $432,000 Notes payable 1,496,250 1,197,000 Common dividends $335,340 $259,200 Total current liabilities 3,259,688 2,607,750 Addition to retained earnings $223,560 $172,800 Long-term debt 1,371,563 1,097,250 1Excludes depreciation and amortization Total liabilities 4,631,250 3,705,000 Common stock ($1 par) 498,750 399,000 Retained earnings 1,596,000 1,995,000 Total equ 2,493,750 1,995,000 $7,125,000 $5,700,000 Total debt and equity Shares outstanding 498,750 399,000 Weighted average cost of capital 7.98% 7.30% Using the change in Atherton's EVA as the decision Company Growth and Performance Metrics criterion, which type of investment recommendation Percentage should you make to your clients? Change Metric Year 2 Year 1 General Metrics O A buy recommendation O A hold recommendation $6,900,000 $6,000,000 Sales 15.00% O A sell recommendation 29.38% Net income $558,900 $432,000 Net cash flow (NCF) $642,000 Which of the following statements are correct? Check al Net operating working capital (NOWC) $2,582,812 that apply. Earnings per share (EPS) $1.12 $1.08 3.76% O An increase in the number of common shares 3.50% Dividends per share (DPS) $0.65 $0.67 outstanding must increase the market value of the firm's equity. $5.00 Book value per share (BVPS) $5.00 0.00% Cash flow per share (CFPS) 0.00% O Other things remaining constant, Atherton's EVA Market price per share $19.75 $22.22 will increase when its ROIC exceeds its WACC. O For any given year, one way to compute Atherton's EVA is as the difference between its MVA Calculation Market value of equity 40.63% NOPAT (such as $522,000) and the product of its Book value of equity $2,493,750 $1,995,000 operating capital ($4,289,250) and its weighted Market Value Added (MVA) $5,885,250 average cost of capital ($7.30). EVA Calculation O Atherton's NCF is calculated by adding its annual $683,100 Net operating profit after-tax (NOPAT) depreciation and amortization expense to the Investor-supplied operating capital 25.00% corresponding year's EBITDA. O The percentage change in Atherton's MVA Weighted average cost of capital 7.98% 7.30% indicates that its management has increased the Dollar cost of capital 36.64% firm's value. Return on invested capital (ROIC) 4.68% Economic Value Added (EVA) $255,210