Jenny Cochran, a graduate of the University of Tennessee with 4...

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.

Income Statement (Millions of Dollars) 2018 2019 Net sales $5,500 $6,000 Cost of goods sold (excluding depr. & amort.) 4,300 4,800 Depreciation and amortization 290 320 Other operating expenses 350 420 Total operating costs $4,940 $5,540 Earnings before interest and taxes (EBIT) $ 560 460 Less interest 68 108 Pre-tax earnings A 492 352 Taxes (25%) 123 88 Net Income $ 369 $ 264 Note: *Computron has no amortization charges.Other Data Stock price Shares outstanding (millions) Common dividends (millions) Ta): rate Weighted average cost of capital (WACC) 2013 $50.00 100 $90 25% 10.00% 2019 $30.00 100 $84 25% 10.0 0% Statement of Cash Flows (Millions of Dollars) 2019 Operating Activities Net income before preferred dividends $ 264 Noncash Adjustments Depreciation and amortization 320 Due to Changes in Working Capital Change in accounts receivable (120) Change in inventories (200) Change in accounts payable 100 Change in accruals 40 Net cash provided by operating activities $ 404 Investing Activities Cash used to acquire fixed assets $(920) Change in short-term investments 90 Net cash provided by investing activities $(830) Financing Activities Change in notes payable $ 200 Change in long-term debt 300 Payment of cash dividends 84) Net cash provided by financing activities $ 416 Net change in cash and equivalents $ (10) Cash and securities at beginning of the year 60 Cash and securities at end of the year 50Balance 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 Less: Accumulated depreciation 1,000 1,320 Net fixed assets $ 2,900 $3,500 Total assets $ 4,080 $4,900 Liabilities and Equity Accounts payable $ 300 $ 400 Notes payable 50 250 Accruals 200 240 Total current liabilities $ 550 $ 890 Long-term bonds 800 1,100 Total liabilities $ 1,350 Common stock 1,000 1,000 Retained earnings 1,730 1,910 Total equity $ 2,730 $ 2,910 Total liabilities and equity $4,080 $4,900