ST1 (pages LLA- 115: letters a -f)

Last year Cole Furnaces had 55,000,000 in operating income (EBIT). The company had a net depreciation
expense of 51,000,000 and an interest expense of $1,000,000; its corporate tax rate was 40%. The
company has s14,000,000 in operating current assets and s4,000,000 in operating current liabilities; it
has $15,000,000 in net plant and equipment. lt estimates that it has an after-tax cost of capital of Lo%.
Assume that Cole's only noncash item was depreciation.
a. What was the company's net income for the year?
EBIT $ 5,ooo,ooo
I nte rest 1,000,000
EBT S 4,ooo,ooo
Taxes (40%) 1,600,000
Net income t2400p00
b. What was the company's net cash flow?
NCF = Nl+ DEP and AMORT
= S2,4o0,ooo + g1,0oo,o0o
= $3,400,000
c. What was the company's net operating profit after taxes (NOpAT)?
NOPAT=EB|T(I-T)
= 55,000,000(0.6)
= $3,000,000
d. Calculate net operating working capital and total net operating capital for the current year.
NOWC = Operating current assets - Operating current liabilities
s14,000,000 - s4,o00,ooo
= S10,000,000
Total net operating capital = NOWC + operating long-term assets
= Slo,ooo,ooo + S15,ooo,ooo
= $25,000,000
e. lf total net operating capltal in the previous year was'524,000,000, what was the company,s free cash
flow (FCF) for the year?
FCF = NOPAT - Net investment in operating capital
= $3,000,000 - ($25,000,000 - s24,ooo,ooo)
= $2,000,000
f. What was the company's Economic Value Added (EVA)?
EVA = EBIT(1 - T) - (Total capital) (After-tax cost of capital)
= $5,000,000(0.6) - (525,000,000) (0.10)
_
= $3,000,000 S2,5oo,ooo
= 9500,000