Chapter 2, Self Test 1

Answer in US Dollar ($)

Depreciation

a. EBIT 5

Interest (1)

EBT 4

Taxes 1. 6

2.4

b. Net cash flow = net income + depreciation

= 2.4 + 1

= 3.4

c. NOPAT = EBIT (1-tax rate)

= 5 (1-40%)

= 5 * 0,6

=3

d. NOWC = OCA-OCC

= 14 - 4

=10

Total NOWC = NOWC + OLTA

=10 + 15

e. Net investment in operating capital = 25 - 24

= 1

FCF= NOPAT - NIOC

= 3-1

=2

f. EVA
=NOPAT-(TOTAL NOWC)(WACC)
=3- (25) 10%
=3 - 2.5
=0.5
=500,000

Problem 2-3

EBIT 6
Interest ____(1)
EBT 5
Tax 40% ____(2)
Net 3

2-8

Taxable income 10.5

Taxes= 3,400,000+ 0.35 (10,500,000-10,000,000)