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.

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.

Note: "Computron has no amortization charges. \begin{tabular}{lr} Statement of Cash Flows (Millions of Dollars) & 2019 \\ \hline Operating Activities & \\ Net income before preferred dividends & 264 \\ Noncash Adjustments & \\ Depreciation and amortization & 320 \\ Due to Changes in Working Capital & (120) \\ Change in accounts recelvable & (200) \\ Change in inventories & 100 \\ Change in accounts payable & 40 \\ Change in accruals & $404 \\ Net cash provided by operating activities & \\ & \\ Investing Activittes & $(920) \\ Cash used to acquire fixed assets & 90 \\ Change in short-term investments & $(830) \end{tabular} Financing Activities Change in notes payable Change in long-term debt $200 300 Assume that you are Cochran's assistant and that you must help her answer the following questions: a. 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? b. What do you conclude from the statement of cash flows? c. What is free cash flow? Why is it important? What are FCF's five uses? d. 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? e. What is Computron's free cash flow? What are Computron's "net uses" of its FCF? f. 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? g. 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. Note: "Computron has no amortization charges. \begin{tabular}{lr} Statement of Cash Flows (Millions of Dollars) & 2019 \\ \hline Operating Activities & \\ Net income before preferred dividends & 264 \\ Noncash Adjustments & \\ Depreciation and amortization & 320 \\ Due to Changes in Working Capital & (120) \\ Change in accounts recelvable & (200) \\ Change in inventories & 100 \\ Change in accounts payable & 40 \\ Change in accruals & $404 \\ Net cash provided by operating activities & \\ & \\ Investing Activittes & $(920) \\ Cash used to acquire fixed assets & 90 \\ Change in short-term investments & $(830) \end{tabular} Financing Activities Change in notes payable Change in long-term debt $200 300 Assume that you are Cochran's assistant and that you must help her answer the following questions: a. 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? b. What do you conclude from the statement of cash flows? c. What is free cash flow? Why is it important? What are FCF's five uses? d. 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? e. What is Computron's free cash flow? What are Computron's "net uses" of its FCF? f. 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? g. 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