Qevstion 4: Mur. Datial Kim, the CFO of Cangrian Corpplats lo condaci a series of firlarcial rario andlyses ming itateriment fer the fival year of 2.19 as follows. In adfition. Me. Kin pelmured the waighted cost of capiul of Ganguat Coep at ions per ansim fer the saene fiecal yeae. foctove (1). Is the abve bulanoe aheet, shurtem han is ane of firsenial avists, and the eder asers beluog wo openting kesta. Oo the poler hand ahon-iern and lone-lem deto. while oder liablitios are dessifoll is eporiting liablities. ilcrss, while the other iterns are all operiling itters. In Required I= Compets financial ratios below (5 points earth. merinal tax rate 304 bl (1) ROE (Raturn co Figaity) fies the year 2-19. bulasec of oyaidy 2 whore RNOA - Not iperating incume (attr tav) i (theyinning Nou + Tinling NON h-2. and Net Operatien asects (NOA) - Operiting assets Operating liabilitics. Net operatiog inceese after tas =(00 perating revenac - Operiting cupense) = (I) - marginal Eas ratc) Net Berruning Cest (NEC) tabo - Net Bornowing Cest afler berianing + Net financing liabilitics at the Ner Honvaing Cevt after tax = (linieree experse - Beteres nvense )=(1 Ner financing thabsitics o Firancine liablines - Financial asicts (3) Resideal Opcrating facens (ReOO) of 219 Re01 - Net operating incoeve of 217 - Net Oprnting arorat at the end of 218 Weighicel sverage soet ef capital Required 2 t If you are a financial avisor to Mur. Kim and it is ctpetred that book BNOA ated NDC ratiat will be convart for the ned several yeat, do you believe that a bonewieg evparaich seratesy from ostride is rational for Gahgnam Question 4: Mr. Daniel Kim, the CFO of Gangnam Corp. plans to conduct a series of financial ratio analyses using comparative balance sheets and comprehensive income statement for the fiscal year of 219 as follows. In addition, Mr. Kim estimated the weighted cost of capital of Gangnam Corp. at 10% per annum for the same fiscal year. footnote (1): In the above balance sheet, short-term loan is one of financial assets, and the other assets belong to operating assets. On the other hand, short-term and long-term borrowings along with bonds payable are financial liabilities, debt), while other liabilities are classified as operating liabilities. Comnrehencive Income Statement footnote (2): Both Interest revenue and expense are financial items, while the other items are all operating items. In addition, there is no OCI (other comprehensive income). footnote (2): Both Interest revenue and expense are financial items, while the other items are all operating items. In addition, there is no OCl (other comprehensive income). Required 1 : Compute financial ratios below, ( 5 points each, marginal tax rate =30% ) (1) ROE(Return on Equity) for the year 219. ROE= Net income/(Beginning Balance of equity + Ending balance of equity) 2 (2) RNOA(Return on Net Operating Asset) of 219. where RNOA = Net operating income (after tax)/ (Beginning NOA+ Ending NOA2, and Net Operating assets (NOA)= Operating assets - Operating liabilities. Net operating income after tax= (Operating revenue - Operating expense) ( 1 - marginal tax rate) (3) Net Borrowing Cost Ratio of 219 Net Borrowing Cost (NBC) ratio - Net Borrowing Cost after tax/Net financing liabilities at the year beginning + Net financing liabilities at the year-end 2. Net Borrowing Cost after tax = (Interest expense Interest revenue )(1 Net financing liabilities = Financing liabilities - Financial assets (4) Residual Operating Income (ReOI) of 219. ReOI= Net operating income of 219 - Net Operating assets at the end of 218 Weighted average cost of capital Required 2 : If you are a financial advisor to Mr. Kim and it is expected that both RNOA and NBC ratio will be constant for the next several year, do you believe that a borrowing expansion strategy from outside is rational for Gangnam Corp? Suggest the reason for your judgement. (5 points)
