Please use a couple of concise and directed sentences to type your responses to each of the following questions. PLEASE USE CITATIONS FOR EACH QUESTION!
Please review the financial economic profit calculation you completed in the Excel Set to answer the first four questions:
1. Please comment on the trend in Volkswagens operating income over the past five years.
2. Please remember that Beta is a measure of risk that consequently drives the cost of equity number and the weighted average cost of capital. Please review Volkswagens beta and comment on whether you believe this to be an accurate representation of Volkswagens risk.
3. Review the market weights of debt and equity for Volkswagen relative to the others in the industry. Is this level of debt too high, too low, misrepresented? Why?
4. Review Volkswagens economic profit trend for the five years. Is this trending in the right direction, too high, too low, misrepresented because of some factor? How or why?
5. Remember strengths are internal to the firm and are things that allow positive net present value enhancing projects in the future. What do you believe to be Volkswagens biggest internal strength? Why?
Please do not forget ciations. Thank you in advance!
\begin{tabular}{|c|c|c|c|c|c|c|c|} \hline \multicolumn{8}{|l|}{ Volkswagen's Balance Sheet: } \\ \hline Year & 2016 & 2017 & 2018 & 2019 & 2020 & 2021 & \multirow{2}{*}{2022668,681} \\ \hline Total Assets & +$485,752 & $500,525 & 1543,161 & $578,626 & +589,347 & 6626,685 & \\ \hline Operating Liabilities & 27,712 & $27,998 & 28,771 & $27,784 & $26,999 & $27,698 & $26,910 \\ \hline Net Operating Assets & $458,040 & $472,528 & $514,390 & $550,842 & $562,347 & $598,987 & $641,771 \\ \hline Total Debt & $183,544 & $193,802 & $226,299 & $235,222 & $238,001 & $255,760 & $248,878 \\ \hline Total Equity and Claims & $274,497 & $278,726 & $288,091 & $315,619 & $324,346 & $343,227 & $392,893 \\ \hline Total Debt, Equity and Claims & $458,040 & $472,528 & 514,390 & 550,842 & $562,347 & 598,987 & $641,771 \\ \hline \multicolumn{8}{|l|}{ Volkswagen's Income Statement: } \\ \hline Year & 2016 & 2017 & 2018 & 2019 & 2020 & 2021 & 2022 \\ \hline Total Revenue & +257,578 & 272,140 & +279,608 & $299,504 & +264,237 & 296,621 & $330,336 \\ \hline Cost of Revenue, Total & $207,352 & $219,106 & $223,278 & $240,261 & $216,665 & $239,072 & $268,579 \\ \hline Selling. General and Dther exper & 41,806 & 36.652 & $39,828 & $39,137 & $36,102 & 34,491 & $25,030 \\ \hline Operating lncome & 8.421 & 16,382 & $16.501 & 20,107 & 11,470 & $23,058 & $36,727 \\ \hline \multicolumn{8}{|l|}{ Given information for Yolkswagen: } \\ \hline \multicolumn{4}{|c|}{ Cost of debt Volkswagen (from the footnotes to the financial statements) } & & 1.83% & & \\ \hline \multicolumn{4}{|c|}{ Beta for Volkswagen Motors (from Yahoo or other financial sources) } & & 1.27 & & \\ \hline \multicolumn{5}{|c|}{ Normalized risk free rate of return in the market (observing the 10 rate on government issued securiti } & 3.00% & & \\ \hline \multicolumn{4}{|c|}{ Equity risk premium (from historical studies of the market) } & & 5.00% & & \\ \hline \multicolumn{4}{|c|}{ Market value of debt (use book or amount disclosed in the footnotes if different) } & & 248,878 & & \\ \hline \multirow{2}{*}{\multicolumn{2}{|c|}{ Number of common shares outstanding }} & & & & 5,744 & & \\ \hline & & & & & 13.49 & & \\ \hline \multicolumn{5}{|c|}{ Market value of equity (number of shares times the stock price on balance sheet date) } & 77,487 & & \\ \hline \multirow{2}{*}{\multicolumn{8}{|c|}{ Calculate the required return (weighted average cost of capital) }} \\ \hline & & & & & & & \\ \hline & Market & Weights & Component & & & & \\ \hline & Values & & Cost & Weighted & & & \\ \hline Debt & $248,878 & 76% & 1.83% & 1.40% & & & \\ \hline Equity & $77,487 & 24% & 9.35% & 2.22% & & & \\ \hline & $326,365 & & & & & & \\ \hline Required return (weighted average & cost of capital & (l)..... & . & 3.62% & & & \\ \hline alcu & it [Economic & c Value Add & led) & & & & \\ \hline Year & 2016 & 2017 & 2018 & 2019 & 2020 & 2021 & 2022 \\ \hline Net Operating Assets & 1+458,040 & $472,528 & +514,390 & $550,842 & $562,347 & $598,987 & +641,771 \\ \hline times the required return & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% \\ \hline Required income in dollars & $16,560 & 17,084 & 18,597 & 19,915 & 20,331 & 21,656 & $23,203 \\ \hline Year & 2016 & 2017 & 2018 & 2019 & 2020 & 2021 & 2022 \\ \hline glncome earned & 8.421 & 16,382 & 16,501 & 20,107 & 111,470 & 23,058 & \\ \hline Less required income & $16,560 & 17,084 & $18,597 & 19,915 & 20,331 & 21,656 & $23,203 \\ \hline Economic profit or [loss] & $[8,139] & [702] & $[2,096] & 191 & $[8,861] & $1,402 & $13,524 \\ \hline noth & & & & & & & \\ \hline eturn & 1.84% & 3.47% & 3.21% & 3.65% & 2.04% & 3.85% & 5.72% \\ \hline Weighted average cost of capital & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% & 3.62% \\ \hline ead & & & & & -15 & & \\ \hline \end{tabular}
