SOLUTIONS:

Practice #1
A.

EBIT 5,000,000
Less: Interest Expense (1,000,000)

Ebit 4,000,000
Less: Tax (40%) (1,600,000)
Net Income $ 2,400,000

B.

Net Income 2,400,000

Depreciation Expense 1,000,000
Net Cash Flow $3,400,000

C.

EBIT 5,000,000
Multiply by 1
0.4 0.6
NOPAT $3,000,000

D.

Operating Current Assets 14,000,000

Less: Operating Current Liabilities -4,000,000
Net Operating Working Capital $10,000,000

Net Operating Working Capital 10,000,000

Add: Net Plant and Equipment 15,000,000
Total Net Operating Working Capital $25,000,000
 E.
NOPAT 3,000,000
Less: Net Investment in
Operating Capital 25,000,000
24,000,000 1,000,000
FCF $2,000,000
F.

EBIT 5,000,000
Multiply by: 1
0.4 0.6
Total 3000000
Less: Product of Operating Capital
and After-Tax percentage cost of capital -2,500,000
EVA $500,000

PROBLEM #2

A.
 Net Operating Working Capital for 2019

Operating Current Assets 450,000

Less: Operating Current Liabilities 135,000
NOWC $315,000

 Total Net Operating Capital for 2019

NOWC 315,000
Add: Fixed Assets 315,000
TOC $630,000
  Net Operating Profit after Taxes for 2019

EBIT 94,500
Multiply by: 60%
NOPAT $56,700

 Free Cash Flow for 2019

NOPAT 56,700
Less: Net Investment in Operating Capital 31,500
FCF $25,200

 Return on Invested Capital

NOPAT 56,700
Divide by: Total Net Operating Capital 630,000
ROIC 9.00%

B.
Additional Input Data
Stock price per share $65.00
# of shares (in thousands) 15,000
After-tax cost of capital 8.0%

 Market Value Added for 2019

Stock Price 65
Multiply by: No. of Shares 15,000,000
Total 975,000,000
Less: Total Common Equity 534,600
MVA $974,465,400
  Economic Value Added for 2019

Operating Capital 630,000

Multiply by: After-tax cost of capital 8%
Total 50,400
Less: NOPAT 56,700
EVA $6,300