'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. (Data Attached)

1. 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 do you conclude from the statement of cash flows?
2. What is Computrons 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?
3. What is Computrons free cash flow (FCF)? What are Computrons net uses of its FCF?
4. Calculate Computrons 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 Computrons growth added value?
5. What is Computron's EVA? The cost of capital was 10% in both years.
6. Assume that a corporation has $200,000 of taxable income from operations. What is the company's federal tax liability?
7. Assume that you are in the 25% marginal tax bracket and that you have $50,000 to invest. You have narrowed your investment choices down to municipal bonds yielding 7% or equally risky corporate bonds with a yield of 10%. Which one should you choose and why? At what marginal tax rate would you be indifferent?

Computron's Income Statement 2019 2020 $ $ INCOME STATEMENT Net sales Cost of Goods Sold (Except depr. and amort.) Other Expenses Depreciation and amortization Total Operating Costs Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (40%) Net Income $ $ $ 2,059,200 $ 1,718,400 $ 204,000 $ 11,340 $ 1,933,740 $ 125,460 $ 37,500 $ 87,960 $ 35,184 $ 52,776 $ 3,500,640 2,988,000 432,000 70,176 3,490,176 10,464 105,600 (95,136) (38,054) (57,082) $ $ $ $ $ S Dividends Tax rate 13,200 $ 40% 6,600 40% Computron's Balance Sheets 2019 2020 $ $ $ $ Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net plant and equipment Total assets $ $ 5,400 $ 29,160 $ 210,720 $ 429,120 $ 674,400 $ 294,600 $ 87,720 $ 206,880 $ 881,280 $ 4,369 12,000 379,296 772,416 1,168,081 721,770 157,896 563,874 1,731,955 $ $ $ $ $ $ $ Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Common Stock Retained Earnings Total Equity Total Liabilites and Equity $ $ $ 87,360 $ 120,000 $ 81,600 $ 288,960 $ 194,059 $ 276,000 $ 122,261 $ 398,261 $ 881,280 $ 194,400 432,000 170,976 797,376 600,000 276,000 58,579 334,579 1,731,955 $ $ Computron's Statemen. of Cash Flows 2020 S (57,081.60) S 70,176.00 Operating Activities Net Income before preferred dividends Noncash adjustments Depreciation and amortization Due to changes in working capital Change in accounts receivable Change in inventories Change in accounts payable Change in accruals Net cash provided by operating activities S S S (168,576.00) (343,296.00) 107,040.00 89,376.00 (302,361.60) S S S Investing activities Cash used to acquire fixed assets Change in short-term investments Net cash provided by investing activities S (427,170.00) 17,160.00 (410,010.00) S Financing Activities Change in notes payable Change in long-term debt Payment of cash dividends Net cash provided by financing activities S S S S 312,000.00 405,940.80 (6,600.00) 711,340.80 Net change in cash and equivilents Cash and securities at beginning of the year Cash and securities at end of the year S s S (1,030.80) 5,400.00 4,369.20 Corporate Tax Rates If a corporation's taxable income is between: (1) (2) $0 $50,000 $50,000 $75,000 $75,000 $100,000 $100,000 $335,000 $335,000 $10,000,000 $10,000,000 $15,000,000 $15,000,000 $18,333,333 $18,333,333 and up It pays this amount on the base of the bracket: (3) SO $7,500 $13,750 $22,250 $113,900 $3,400,000 $5,150,000 $6,416,667 Plus this percentage on the excess over the base (4) 15.0% 25.0% 34.0% 39.0% 34.0% 35.0% 38.0% 35.0%