Build a Model Solution 11/26/2018
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
Key Input Data
Lan & Chen Technologies: December 31 Balance Sheets
(Millions of Dollars)
Assets 2020 2019
Cash and cash equivalents $47,250 $45,000
Short-term investments 3,800 3,600
Liabilities and equity
Accounts payable $94,500 $90,000
Accruals 47,250 45,000
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
Note to Mike and Phillip: After copying to the file for
Net operating working capital (NOWC)
2020 NOWC =
Operating
current assets
–
Operating
current
liabilities
2020 NOWC =
$472,500 –$141,750
2020 NOWC =
$330,750
Total net operating capital (TNOC)
2020 TNOC = NOWC + Fixed assets
2020 TNOC =
$330,750 +$330,750
2020 TNOC =
$661,500
$315,000 +$315,000
$630,000
Investment in total net operating capital
$2,020 $2,019
2020
Inv. In TOC =
TNOC – TNOC
2020
Inv. In TOC =
$661,500 –$630,000
2020
Inv. In TOC =
$31,500
Net operating profit after taxes
2020 NOPAT = EBIT x ( 1 – T )
2020 NOPAT =
$99,200 x75%
2020 NOPAT =
$74,400
Free cash flow
$42,900
Return on invested capital
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
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.
Operating
current assets
Operating
current
liabilities
$450,000 –$135,000
$315,000
