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Q2. Consider the balance sheets and selected data from the income statement of Keith Corporation that appear below: Assets December 31 2020 2019 Cash Marketable Securities Accounts receivables Inventories Total Current Assets 1,500 1,800 2,000 2,900 8,200 1,000 1,200 1,800 2,800 6,800 Gross Fixed Assets Less: Accumulated Depreciation Net Fixed Assets Total Assets 29,500 14,700 14,800 23,000 28,100 13,100 15,100 21,800 Liabilities and Stockholder's Equity. Accounts payable 1,600 Notes payable 2,800 Accruals 200 Total Current Liabilities 4,600 Long-Term Debt 5,000 Total liabilities 2,600 Common Stock 10,000 Retained earnings 3,400 Total Stockholder's equity 13,400 Total liab. And stockholder's equity 23,000 1,500 2,200 300 4,000 5,000 9,000 10,000 2,800 12,800 21,800 Keith Corporations Income Statement (2020) Depreciation Expense Earning Before Interest and Taxes (EBIT) Interest Expense Net Profit After Taxes Tax Rate 1,600 2,700 367 1,400 40% a. Calculate the free cash flow (FCF) for the year ended December 31, 2020? b. Compute Return on invested capital for 2020? If the cost of capital is 10%, how is the firm performing? Discuss. c. Compute Capital requirement ratio (CRR) and Economic Value Added (EVA) and comment on capacity utilization by this firm as well as, are they adding any value in economic sense. What does that tell you about the strength and the weakness of this firm. (25 points) Q2. Consider the balance sheets and selected data from the income statement of Keith Corporation that appear below: Assets December 31 2020 2019 Cash Marketable Securities Accounts receivables Inventories Total Current Assets 1,500 1,800 2,000 2,900 8,200 1,000 1,200 1,800 2,800 6,800 Gross Fixed Assets Less: Accumulated Depreciation Net Fixed Assets Total Assets 29,500 14,700 14,800 23,000 28,100 13,100 15,100 21,800 Liabilities and Stockholder's Equity. Accounts payable 1,600 Notes payable 2,800 Accruals 200 Total Current Liabilities 4,600 Long-Term Debt 5,000 Total liabilities 2,600 Common Stock 10,000 Retained earnings 3,400 Total Stockholder's equity 13,400 Total liab. And stockholder's equity 23,000 1,500 2,200 300 4,000 5,000 9,000 10,000 2,800 12,800 21,800 Keith Corporations Income Statement (2020) Depreciation Expense Earning Before Interest and Taxes (EBIT) Interest Expense Net Profit After Taxes Tax Rate 1,600 2,700 367 1,400 40% a. Calculate the free cash flow (FCF) for the year ended December 31, 2020? b. Compute Return on invested capital for 2020? If the cost of capital is 10%, how is the firm performing? Discuss. c. Compute Capital requirement ratio (CRR) and Economic Value Added (EVA) and comment on capacity utilization by this firm as well as, are they adding any value in economic sense. What does that tell you about the strength and the weakness of this firm. (25 points)
