Question 2 (25 marks) Income Statement Revenues Cost of sales Selling costs Depreciation Operating Profit Interest Expenses Earnings before taxes Taxes Net income Note: Operating tax rate = 30% Marginal tax rate = 30% $m 300 -110 -70 -25 95 -6 89 26.7 62.3 Assets Balance Sheet Working cash Accounts receivable Inventories Current assets Property, plant and equipment Prepaid pension assets Total assets Liabilities and Equity Account payable Short-term debt Restructuring reserves Current liabilities (7 marks) Long-term debt Retained Earnings Shareholders' equity Total Liabilities & Equity $m P823 38 = 2888|| 15 35 15 65 155 10 230 11 17 12 Required: a) Reorganize the financial statements and calculate (i) NOPLAT, (ii) Net Current Account or Working Capital; (iii) Invested Capital, and (iv) Total Funds Invested. (20 marks) b) A firm is considering making an acquisition with either borrowed cash or issued stock. With the cash acquisition, the earnings per share (EPS) after the acquisitions will increase by 20%. The stock acquisition will increase EPS by only 10%. Required: Explain why the purchase with cash can destroy more value or create less value than the purchase with stock? (5 marks) 40 75 80 35 230 Question 2 (25 marks) Income Statement Revenues Cost of sales Selling costs Depreciation Operating Profit Interest Expenses Earnings before taxes Taxes Net income Note: Operating tax rate = 30% Marginal tax rate = 30% $m 300 -110 -70 -25 95 -6 89 26.7 62.3 Assets Balance Sheet Working cash Accounts receivable Inventories Current assets Property, plant and equipment Prepaid pension assets Total assets Liabilities and Equity Account payable Short-term debt Restructuring reserves Current liabilities (7 marks) Long-term debt Retained Earnings Shareholders' equity Total Liabilities & Equity $m P823 38 = 2888|| 15 35 15 65 155 10 230 11 17 12 Required: a) Reorganize the financial statements and calculate (i) NOPLAT, (ii) Net Current Account or Working Capital; (iii) Invested Capital, and (iv) Total Funds Invested. (20 marks) b) A firm is considering making an acquisition with either borrowed cash or issued stock. With the cash acquisition, the earnings per share (EPS) after the acquisitions will increase by 20%. The stock acquisition will increase EPS by only 10%. Required: Explain why the purchase with cash can destroy more value or create less value than the purchase with stock? (5 marks) 40 75 80 35 230