4. Exhibit 9.19 presents the income statement and balance sheet for HealthCo, a $600 million health-care company. Compute NOPLAT, average invested capital, and ROIC for the current year and future year. Assume an operating tax rate of 30 percent. If the weighted average cost of capital is 10 percent, is the company creating value? In which year is the firm performing better?

Why?

EXHIBIT 9.19 HealthCo: Income Statement and Balance Sheet $ million Income statement Last year Current year Next year Balance sheet Last year Current year Next year Revenues 1,100 1,210 1,307 Operating cash 22 24 26 Cost of sales (770) (871) (915)
Excess cash and marketable securities 91 74 83 Selling, general, and administrative (165) (182) (196) Accounts receivable 220 242 261 Depreciation (33) (36) (39) Inventory 330 363 392 EBIT 132 121 157 Current assets 663 703 763 Interest expense (15) (15) (15)
Gain (loss) on sale of assets – (10) – Property, plant, and equipment 440 484 523 EBT 117 96 142 Equity investments 50 50 50 Taxes (35) (29) (43)
Net income 82 67 99 Total assets 1,153 1,237 1,336 Dividends 33 27 40 Accounts payable 275 303 327 Short-term debt 90 90 90 Accrued expenses 165 182 196 Current liabilities 530 574 613 Long-term debt 210 210 210 Common stock 100 100 100 Retained earnings 313 353 413 Total liabilities and equity 1,153 1,237 1,336