Posted: March 12th, 2023

# Week 1 case study 1

### Outcome Alignment

Program Outcome

Course Outcome

1. Students will apply best practices to solve managerial issues.

Students will apply corporate financial management concepts

#### Overview

This is a case study to help you understand the financial statements and learn how to work with financial data in excel. You will use the following scenario:

Jenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.

During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.

Instructions

for the case study and submit as an .xlsx or .xls file.

## Mini Case

perience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.
During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.

term investments

0

10

0

0

50

1,000
1,000

\$ 4,080
\$ 4,900

2018
2019

320

350

)

)

2018
2019

s)

100
100

4

25%
25%

)

10.00%

2019

\$ 264

320

100

40

Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.

90

300

60

)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have? (7 pts)

2019

EBIT
x

=

x

=

2018

EBIT
x
( 1 – T )

=

x

=

2019

=

=

=

2018
NOWC =
Operating current assets

Operating current liabilities

=

=

(TNOC)

net operating long-term assets

2019

NOWC
+

=

+

=

2018
TNOC =
NOWC
+
Fixed assets

=

+

=

2019

NOPAT

=

=

2019

payment =

cost of capital (WACC). What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think Computron’s growth added value? (6pts)

2019

NOPAT

Operating Capital

=

=

2018
ROIC =
NOPAT
÷
Operating Capital

=

=

2019

NOPAT
÷

=

=

2018
OP =
NOPAT
÷
Sales

=

=

2019

÷
Sales

=

=

2018
CR =
Total Op. Cap.
÷
Sales

=

=

2019

NOPAT

WACC

=

x

=

2018

NOPAT

Operating Capital x

WACC

=

x

=

\$50.00
\$30.00

100
100

2019

Stock price
x

=

x

=

2018

MVA =
Stock price
x
# of shares

Total common equity

=

x

=

million of taxable income from operations. It also received interest income of \$8 million and dividend income of

million. The federal tax rate is

and the dividend exclusion rate is

. What is the company’s federal tax liability? (2pts)

\$87
million

\$8
million

\$10
million

21%

50%

million

million

million

to invest. You have narrowed your investment choices down to municipal bonds yielding

or equally risky corporate bonds with a yield of 10%. Which one should you choose and why? At what marginal tax rate would you be indifferent? (4 pts)

\$20,000

10%

7%

After-tax interest

– tax on interest

=

Pre-tax interest

=