Ch 06: Assignment - Accounting for Financial Management X . (EVA) Alexis, your newly appointed boss, has tasked you with evaluating the following financial data for Extensive Enterprise Inc. to determine how extensive's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Extensive's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if th value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. A-Z Extensive Enterprise Inc. Income Statement January 1 - December 31, Year 2 Year 2 Sales $3,575,000 Expenses 2,860,000 715,000 Depreciation and amortization expense 125,125 EBIT 589,875 Interest expense 107,250 EBT 482,625 Tax expense (40%) 193,050 Net income $289,575 Common dividends 5173,745 Year 1 $3,250,000 2,665,000 585.000 113,750 471,250 81,250 390,000 156,000 $234,000 Extensive Enterprise Inc. Balance Sheet December 31, Year 2 Assets: Year 2 Cash and cash equivalents $222,300 Receivables 741,000 Inventory 1,296,750 Current assets 2,260,050 Net fixed assets 1,444,950 Total assets $3,705,000 Liabilities and Equity Accounts payable $555,750 Accruals 361,238 Notes payable 778,050 Tatal current this + LE Year 1 $185,250 617,500 1,080,625 1,883,375 1,204,125 $3,087,500 5463,125 301,031 648,375 $140,400 AM Ch 06: Assignment - Accounting for Financial Management January 1 - December 31, Year 2 Year 2 Year 1 Sales $3,575,000 $3,250,000 Expenses 2,860,000 2,665,000 EBITDA 715,000 585,000 Depreciation and amortization expense 125, 125 113,750 EBIT 589,875 471,250 Interest expense 107,250 81,250 482,625 390,000 Tax expense (40%) 193,050 156,000 Net income $289,575 $234,000 Year 1 $185,250 617,500 1,080,625 1,883,375 1,204,125 $3,087,500 December 31, Year 2 Assets: Year 2 Cash and cash equivalents $222,300 Receivables 741,000 Inventory 1,296,750 Current assets 2,260,050 Net fixed assets 1,444,950 Total assets $3,705,000 Liabilities and Equity Accounts payable $555,750 Accruals 361,238 Notes payable 778,050 Total current liabilities 1,695,038 Long-term debt 713,213 Total liabilities 2,408,250 Common stock ($1 par) 259,350 Retained earnings 1,037,400 Total equity 1,296,750 Total debt and equity $3,705,000 Common dividends Addition to retained earnings Excludes depreciation and amortization $173,745 $115,83 $140,400 $93,600 $463,125 301,031 648,375 1,412,531 594,344 2,006,875 216,125 864,500 1,080,625 $3,087,500 Shares outstanding Weighted average cost of capital 259,350 7.98% 216,125 7.3096 ch o e 1 1:31 PM Ch 06: Assignment - Accounting for Financial Management 0 x To facilitate your analysis, complete the following table, and use the results to answer the related questions, Round your percentage change answers to two decimal places. Company Growth and Performance Metrics Percentage Change Using the change in Extensive's EVA as the decision criterion, which type of investment recommendation should you make to your clients? Metric Year 1 Year 2 General Metrics $3,575,000 $289,575 $3,250,000 $234,000 $347,750 O A hold recommendation O A sell recommendation O A buy recommendation $1,343,062 Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $1.08 $0.67 $5.00 0.00% -0.62% $19.13 $21.23 MVA Calculation Which of the following statements are correct? Check all that apply. Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments Extensive's NCF is calculated by adding its annua Interest expense to the corresponding year's net income For any given year, one way to compute Extensive's EVA is as the difference between its NOPAT (such as $282,750) and the product of its operating capital ($2,323,344) and its weighted average cost of capital ($7.30). 28.99% Market value of equity Book value of equity Market Value Added (MVA) $1,296,750 $1,080,625 $3,187,844 EVA Calculation x 0.00% -0.62% Ch 06: Assignment - Accounting for Financial Management Net cash flow (NCF) $347,750 Net operating working capital (NOWC) $1,343,062 Earnings per share (EPS) $1.08 Dividends per share (DPS) $0.67 Book value per share (BVPS) $5.00 Cash flow per share (CFPS) Market price per share $21.23 $19.75 MVA Calculation Market value of equity Book value of equity $1,296,750 $1,080,625 Market Value Added (MVA) $3,187,844 EVA Calculation Net operating profit after-tax (NOPAT) $353,925 Investor supplied operating capital Weighted average cost of capital 7.98% 7.30% Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) $131,315 28.99% Which of the following statements are correct? Check all that apply. Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments. Extensive's NCF is calculated by adding its annual interest expense to the corresponding year's net income. For any given year, one way to compute Extensive's EVA is as the difference between its NOPAT (such as $282,750) and the product of its operating capital ($2,323,344) and its weighted average cost of capital ($7.30). Extensive's net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm. The percentage change in Extensive's EVA indicates that management has increased its value. 20.00% 31.18% 4.27%