Quantify the Effects of Managerial Actions on ROPI and Components BCS Enterprises reports the following financial data just prior to its fiscal year ended June 30, 2017 ($ millions). BCS Enterprises Balance Sheet Cash $100 Accounts payable $300 Accounts receivable 300 Long-term debt 600 500 Inventory 1,000 1,000 Equity Property, plant & equipment $1,900 Total assets Total liabilities and equity $1,900 Actual Forecasted June 2017 June 2018 Sales $1,310 $1,200 NOPAT $210 $216 NOA $1,500 $1,545 WACC 7% a. Compute ROPI for FY2017 and FY2018. Net operating assets (NOA) at June 30, 2016 were $1,350 Round answers to one decimal place, if applicable. 2017 2018 ROPI 0 b. The company is contemplating taking the following actions before the end of June 2017. (These actions are not reflected in any of the financial data reported above.) For each of the actions, determine the effect on residual operating income for the fiscal year ended June 30, 2018 1. Reduce inventory by 10% which reduces accounts payable by 5%. 2. Decrease property, plant and equipment (PPE) by 20% with no consequent impact on NOPAT. 3. Engage in a sale leaseback of a major building. The company will sell 50% of its PPE at book value and increase rental costs by $30 after tax, per year. 4. Increase debt $300, which increases interest expense by $15. Round answers to one decimal place, if applicable. Action Actual Forecasted 3 4 June 2017 June 2018 1 2 NOPAT $ 0 NOABEG 0 0 0 0 ROPI 0 $ 0 C 0 Quantify the Effects of Managerial Actions on ROPI and Components BCS Enterprises reports the following financial data just prior to its fiscal year ended June 30, 2017 ($ millions). BCS Enterprises Balance Sheet Cash $100 Accounts payable $300 Accounts receivable 300 Long-term debt 600 500 Inventory 1,000 1,000 Equity Property, plant & equipment $1,900 Total assets Total liabilities and equity $1,900 Actual Forecasted June 2017 June 2018 Sales $1,310 $1,200 NOPAT $210 $216 NOA $1,500 $1,545 WACC 7% a. Compute ROPI for FY2017 and FY2018. Net operating assets (NOA) at June 30, 2016 were $1,350 Round answers to one decimal place, if applicable. 2017 2018 ROPI 0 b. The company is contemplating taking the following actions before the end of June 2017. (These actions are not reflected in any of the financial data reported above.) For each of the actions, determine the effect on residual operating income for the fiscal year ended June 30, 2018 1. Reduce inventory by 10% which reduces accounts payable by 5%. 2. Decrease property, plant and equipment (PPE) by 20% with no consequent impact on NOPAT. 3. Engage in a sale leaseback of a major building. The company will sell 50% of its PPE at book value and increase rental costs by $30 after tax, per year. 4. Increase debt $300, which increases interest expense by $15. Round answers to one decimal place, if applicable. Action Actual Forecasted 3 4 June 2017 June 2018 1 2 NOPAT $ 0 NOABEG 0 0 0 0 ROPI 0 $ 0 C 0
