Solution 7/16/2015
Chapter: 2
Problem: 15
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars)
2016 2015
Sales $945,000 $900,000
Expenses excluding depreciation and amortization 812,700 774,000
EBITDA $132,300 $126,000
Depreciation and amortization 33,100 31,500
EBIT $99,200 $94,500
Interest Expense 10,470 8,600
EBT $88,730 $85,900
Taxes (40%) 35,492 34,360
Net income $53,238 $51,540
Common dividends $43,300 $41,230
Addition to retained earnings
$9,938 $10,310
Lan & Chen Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets 2016 2015
Cash and cash equivalents $47,250 $45,000
Short-term investments 3,800 3,600
Accounts Receivable 283,500 270,000
Inventories 141,750 135,000
Total current assets $476,300 $453,600
Net fixed assets 330,750 315,000
Total assets $807,050 $768,600
Liabilities and equity
Accounts payable $94,500 $90,000
Accruals 47,250 45,000
Notes payable 26,262 9,000
Total current liabilities $168,012 $144,000
Long-term debt 94,500 90,000
Total liabilities $262,512 $234,000
Common stock 444,600 444,600
Retained Earnings 99,938 90,000
Total common equity $544,538 $534,600
Total liabilities and equity $807,050 $768,600
Key Input Data
Tax rate
40%
Net operating working capital
a. Using the financial statements shown below, calculate net operating working capital, total net
operating capital, net operating profit after taxes, free cash flow, and return on invested capital for
the most recent year.
2016 NOWC =
Operating
current assets
–
Operating
current
liabilities
2016 NOWC =
$472,500 –$141,750
2016 NOWC =
$330,750
2015 NOWC =
Operating
current assets
–
Operating
current
liabilities
$450,000 –$135,000
$315,000
$661,500
$630,000
$661,500 –$630,000
MVA = Stock price x # of shares – Total common equity
MVA =
$65.00 x15,000 –$544,538
MVA =
$975,000 –$544,538
MVA =
$430,462
Economic Value Added
EVA = NOPAT –
(Operating Capital
x After-tax cost of capital)
EVA =
$59,520 –$661,500 x8%
EVA =
$59,520 –$52,920
EVA =
$6,600