Build a Model Solution 11/26/2018
Chapter: 2 Note to Mike and Phillip: After copying to the file for students, delete all yellow cells. Change blue cells to values (blue is calculations here) and get rid of color. Also, delete cell C1 and this message.
Problem: 21
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Millions of Dollars) 2020 2019
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 10,400 8,900
EBT $88,800 $85,600
Taxes (25%) 22,200 21,400
Net income $66,600 $64,200
Common dividends $43,300 $41,230
Addition to retained earnings
$23,300 $22,970
Lan & Chen Technologies: December 31 Balance Sheets
(Millions of Dollars)
Total current liabilities $159,150 $144,000
Long-term debt 90,000 90,000
Total liabilities $249,150 $234,000
Common stock $444,600 $444,600
Retained Earnings 113,300 90,000
Total common equity $557,900 $534,600
Total liabilities and equity $807,050 $768,600
Key Input Data
Tax rate 25%
Net operating working capital (NOWC)
2020 NOWC =
Operating
current
assets
–
Operating
current
liabilities
2020 NOWC = $472,500 –$141,750
2020 NOWC = $330,750
Operating
current
assets
Operating
current
liabilities
2019 NOWC = $450,000 –$135,000
2019 NOWC = $315,000
Total net operating capital (TNOC)
Investment in total net operating capital
2020
2020
2020
Net operating profit after taxes
2020 NOPAT = EBIT x ( 1 – T )
2020 NOPAT = $99,200 x75%
2020 NOPAT = $74,400
Free cash flow
2020 FCF = NOPAT – Investment in total net operating capital
2020 FCF = $74,400 –$31,500
2020 FCF = $42,900
Return on invested capital
2020 ROIC = NOPAT / Total net operating capital
2020 ROIC = $74,400 /$661,500
2020 ROIC = 11.25%
Additional Input Data
Stock price per share $65.00
# of shares (in thousands) 15,000
After-tax cost of capital 10.0%
Market Value Added
Economic Value Added
(Operating 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
b. Assume that there were 15 million shares outstanding at the end of the year, the year-end
closing stock price was $65 per share, and the after-tax cost of capital was 10%. Calculate EVA and
MVA for the most recent year.