Jenny Cochran, a graduate of the University of Tennessee with $4$ years of experience asan 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.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 the five uses of FCF$?$

d$.$ What is Computron$$s net operating profit after taxes $($NOPAT$)?$ What are operat$-$ing current assets? What are operating current liabilities? How much net operatingworking capital and total net operating capital does Computron have?

e$.$ What is Computron$$s free cash flow $($FCF$)?$ What are Computron$$s $$net uses$$of its FCF$?$

f$.$ Calculate Computron$$s return on invested capital $($ROIC$).$ Computron has a $10\%$ cost ofcapital $($WACC$).$ What caused the decline in the ROIC? Was it due to operating profit$-$ability or capital utilization? Do you think Computron$$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.

h$.$ What happened to Computron$$s Market Value Added $($MVA$)?$

i$.$ What are the differences between progressive tax rates and flat tax rates? Are U$.$S$.$corporate tax rates progressive or flat? Identify the rate or rates that apply to a cor$-$poration$$s taxable income.

j$.$ How are corporations taxed on: $(1)$ pre$-$tax profits from operations $($including salesof equipment that it no longer needs$),(2)$ interest received from bank accounts andother investments that pay interest, $(3)$ and capital gains from the sale of a financialsecurity?

k$.$ What is the Corporate Net Operating Loss $($NOL$)$ Carryforward provision?

l$.$ Suppose a company has taxable income of $$80$ billion. However, the company has$$72$ billion in prior unused net operating losses. What is the company$$s taxableincome after the carryforward adjustment, the tax on the adjusted income, and anyremaining unused prior loss? The corporate tax rate is $25\%$ and the carryforwardlimitation percentage is $80\%.$

m$.$ A corporation has $$50$ billion of Earnings Before Interest and Taxes $($EBIT$)$ and$$20$ billion in interest expenses this year. How much interest expense can the com$-$pany deduct from its EBIT in the current year? What happens if the company can$$tdeduct all of its interest expenses in the current year?

n$.$ Compare the corporate tax treatments of interest that a company pays versus divi$-$dends that a company pays. Do the tax treatments cause a company to prefer financ$-$ing with equity or debt, all else held equal?

o$.$ How is a company taxed on interest it receives from bank accounts and other finan$-$cial investments that pay interest? How is a company taxed on a capital gain if it sellsa financial security for a profit? If a company owns shares of stock issued by anothercompany, how is the company taxed on dividends it receives from those shares?

p$.$ A company has $$40$ million in cash and has decided to invest it in another com$-$pany$$s bonds or preferred stock, which it considers to be equally risky. The bondspay an interest rate of $5\mathrm{.}4\%$ and the preferred stock pays a dividend rate of $5\%.$ Thecorporate tax rate is $25\%.$ Which investment has the higher after$-$tax return?

q$.$ A corporation has $$166$ million of taxable income from operations. It also receivedinterest income of $$20$ million and dividend income of $$28$ million from an unre$-$lated company. The federal tax rate is $21\%$ and the dividend exclusion rate is $50\%.$What is the company$$s federal tax liability?

r$.$ If a U$.$S$.$ company has a foreign subsidiary, how are the subsidiary$$s profits taxed bythe United States?

s$.$ Briefly describe key provisions for personal taxes.t$.$ Assume that you are in the $24\%$ marginal tax bracket. You have narrowed your in$-$vestment choices down to municipal bonds yielding $5\%$ or equally risky corporatebonds with a yield of $6\mathrm{.}4\%.$ Which one should you choose and why? At what mar$-$ginal personal tax rate would you be indifferent?