Rafael, your newly appointed boss, has tasked you with evaluating the following financial data for Galaxy Corp, to determine how Galaxy's value has changed over the past year. The investment firm for which you work will make a positive (or buy recommendation to its investing clients if Galaxy's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative for "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. January 1 - December 31, Year 2 Year 2 Year 1 $1,000,000 820,000 $1,200,000 960,000 $240,000 42,000 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT Tax expense (40%) Net income Common dividends Addition to retained earnings Excludes depreciation and amortization $198,000 36,000 $162,000 64,800 $97,200 $58,320 $38,880 $180,000 35,000 $145,000 25,000 $120,000 48,000 $72,000 $43,200 $28,800 December 31, Year 2 Year 2 Year 1 Assets: Cash and cash equivalents $76,950 $57,000 December 31, Year 2 Year 2 Year 1 $76,950 $57,000 256,500 190,000 448,875 332,500 $782,325 $579,500 500,175 370,500 $1,282,500 $950,000 Assets Cash and cash equivalents Receivables Inventory Current assets Net fixed assets Total current assets Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock (51 par) Retained earnings Total equity Total abilities and equity Shares outstanding Weighted average cost of capital $192,375 5142,500 125,044 92,625 269,325 199,500 5586,744 1434,625 246,881 182,875 $833,625 5617,500 89,275 66,500 359,100 266,000 5448,875 $332,500 $1,282,500 $950,000 59,775 66,500 7.98 7.30 M To lacilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use a minus (-) sign.) Company Growth and Performance Metrics Metric Year 2 Year 1 Percentage Change General Metrics Sales $1,200,000 $1,000,000 Net income $97,200 $72,000 Net cash flow (NCF) $107.000 Net operating working capital (NOWC) $464,906 Earnings per share (EPS) $1.08 % Dividends per share (DPS) $0.65 $ Book value per share (BVPS) $5.00 0.00% Cash flow per share (CFPS) -3.73% Market price per share $22.71 $19.75 % % % $ % % $ Year 2 Year 1 Percentage Change Metric MVA Calculation Market value of equity Book value of equity Market Value Added (MVA) 55.23% $448,875 $332,500 $ $980,875 % Year 2 Year 1 Percentage Change Metric EVA Calculation $118.800 9 Net operating profit after-tax (NOPAT) Investor supplied operating capital 35.00% Metric Year 2 Year 1 Percentage Change $118,800 $ % 35.00% EVA Calculation Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) 7.98% 7.30% 47.57% 1.15% % % $41,788 % Using the change in Galaxy's EVA as the decision criterion, which type of investment recommendation should you make to your clients? A sell recommendation A buy recommendation A hold recommendation Which of the following statements are correct? Check all that apply. Galaxy's NCF is calculated by adding its annual interest expense to the corresponding year's net income. For any given year, one way to compute Galaxy's EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments Galaxy's net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm Other things remaining constant, Galaxy's EVA will increase when its ROIC exceeds its WACC. D