Newman Inc. recently reported $2,500 of operating current assets and $1,250 of o
ID: 2666646 • Letter: N
Question
Newman Inc. recently reported $2,500 of operating current assets and $1,250 of operating current liabilities. The company had EBIT equal to $5000 with federal tax rate was 20%. If the companies operating long term assets (a.k.a. net fixed assets) changed by $500, what is the free cash flow ofNewman Inc.
2) CBM has 2000 shares with a value of $2 per share. Further, its common stock and retained earnings are $550 and $200 respectively. What is CBM’s MVA?
3) MYG reported $7,500 of operating current assets and $1,750 of operating current liabilities. Further it has $10,000 of operating long term assets and an EBIT of $3000 with a 25% tax rate. What is MYG’s ROIC (return on invested capital)?
Explanation / Answer
Free Cash Flow (FCF):-
A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as:
EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure
Change in Net Working Capital = (current assets – current liabilities)
= $2500 - $1250
= $1250
= $5000(1-0.20) + 0 + $1250 - $500
= 4750
Free Cash Flow (FCF) = 4750
Market Value Added (MVA Mean)
A calculation that shows the difference between the market value of a company and the capital contributed by investors (both bondholders and shareholders) In other words, it is the sum of all capital claims held against the company plus the market value of debt and equity.
Calculated as:
MVA = company’s market value – invested capital
(Company’s market value = 2000 shares * $2 per share = $4000)
Invested capital = $550 + $200 = $750
MVA = $4000 - $750
= $3250
Hi you should not ask more then one question. But I answered for first 2 questions