'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. (Data Attached)What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What do you conclude from the statement of cash flows?What is Computron’s net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?What is Computron’s free cash flow (FCF)? What are Computron’s “net uses” of its FCF?Calculate Computron’s return on invested capital (ROIC). Computron has a 10% 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?What is Computron's EVA? The cost of capital was 10% in both years.Assume that a corporation has $200,000 of taxable income from operations. What is the company's federal tax liability?Assume that you are in the 25% marginal tax bracket and that you have $50,000 to invest. You have narrowed your investment choices down to municipal bonds yielding 7% 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? Computron's Income Statement20192020INCOME STATEMENTNet salesCost of Goods Sold (Except depr. and amort.)2,059,2003,500,6401,718,4002,988,000Other Expenses204,000432,000Depreciation and amort zationTotal Operating CostsEarnings before interestand taxes (EBIT)Less interest11,34070,1761,933,7403,490,176125,46010,46437,500105,600Pre-tax earnings87,960-95,136Taxes (40%)35,184-38,054.4Net Income52,776-57,081.6Dividends13,200 6,600Тах rate40%40%Computron's Balance Sheets20192020AssetsCash and equivalentsShort-term investments5,4004,369.229,16012,000Accounts receivable210,720379,296Inventories429,12072,416רTotal current assets674,4001,168,081.2Gross fixed assets294,600721,770Less: Accumulated depreciationNet plant and equipmenTotal assets87,720157,896206,880563,874881,2801,731,955.2Liabilities and equityAccounts payableNotes payable87,360194,400120,000432,000Accruals81,600170,976Total current liabilities288,960797,376Long-term bondsCommon StockRetained Earnings194,059.2600,000276,000276,000122,260.858,579.2Total Equity398,260.8334,579.2Total Liabilites and Equity881,2801,731,955.2 Computron's Statement of Cash Flows2020Operating ActivitiesNet Income before preferred dividendsNoncash adjustmentsDepreciation and amortizationDue to changes in working capitalChange in accounts receivableChange in inventoriesChange in accounts payable-57,081.670,176-168,576-343,296107,040Change in accruals89,376Net cash provided by operating activities-302,361.6Investing activitiesCash used to acquire fixed assetsChange in short-term nvestmentsNet cash provided by investing activities-427,17017,160-410,010Financing ActivitiesChange in notes payatleChange in long-term debtPayment of cash dividendsNet cash provided by financing activities312,000405,940.8-6,600711,340.8Net change in cash and equivilentsCash and securities at beginning of the yearCash and securities at end of the year-1,030.85,4004,369.2Corporate Tax RatesPlus this percentageIt pays this amount onIf a corporation's taxable income is between:on the excess overthe base of the bracket:the base(1)(2)(3)(4)$0$50,000$015.0%$50,000$75,000$7,50025.0%$75,000S100,000S13,75034.0%$100,000S335,000S22,25039.0%$335,000$10,000,000$113,90034.0%$10,000,000$15,000,000$3,400,00035.0%$15,000,000$18,333,333$5,150,00038.0%$18,333,333and up$6,416,66735.0%

“Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

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. (Data Attached) What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What do you conclude from the statement of cash flows? What is Computron’s net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have? What is Computron’s free cash flow (FCF)? What are Computron’s “net uses” of its FCF? Calculate Computron’s return on invested capital (ROIC). Computron has a 10% 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? What is Computron's EVA? The cost of capital was 10% in both years. Assume that a corporation has $200,000 of taxable income from operations. What is the company's federal tax liability? Assume that you are in the 25% marginal tax bracket and that you have $50,000 to invest. You have narrowed your investment choices down to municipal bonds yielding 7% 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?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.5.1MBA

See similar textbooks

Related questions

Question

100%

'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. (Data Attached)

What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What do you conclude from the statement of cash flows?
What is Computron’s net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?
What is Computron’s free cash flow (FCF)? What are Computron’s “net uses” of its FCF?
Calculate Computron’s return on invested capital (ROIC). Computron has a 10% 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?
What is Computron's EVA? The cost of capital was 10% in both years.
Assume that a corporation has $200,000 of taxable income from operations. What is the company's federal tax liability?
Assume that you are in the 25% marginal tax bracket and that you have $50,000 to invest. You have narrowed your investment choices down to municipal bonds yielding 7% 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?

Computron's Income Statement
2019
2020
INCOME STATEMENT
Net sales
Cost of Goods Sold (Except depr. and amort.)
2,059,200
3,500,640
1,718,400
2,988,000
Other Expenses
204,000
432,000
Depreciation and amort zation
Total Operating Costs
Earnings before interestand taxes (EBIT)
Less interest
11,340
70,176
1,933,740
3,490,176
125,460
10,464
37,500
105,600
Pre-tax earnings
87,960
-95,136
Taxes (40%)
35,184
-38,054.4
Net Income
52,776
-57,081.6
Dividends
13,200 6,600
Тах rate
40%
40%
Computron's Balance Sheets
2019
2020
Assets
Cash and equivalents
Short-term investments
5,400
4,369.2
29,160
12,000
Accounts receivable
210,720
379,296
Inventories
429,120
72,416ר
Total current assets
674,400
1,168,081.2
Gross fixed assets
294,600
721,770
Less: Accumulated depreciation
Net plant and equipmen
Total assets
87,720
157,896
206,880
563,874
881,280
1,731,955.2
Liabilities and equity
Accounts payable
Notes payable
87,360
194,400
120,000
432,000
Accruals
81,600
170,976
Total current liabilities
288,960
797,376
Long-term bonds
Common Stock
Retained Earnings
194,059.2
600,000
276,000
276,000
122,260.8
58,579.2
Total Equity
398,260.8
334,579.2
Total Liabilites and Equity
881,280
1,731,955.2

Computron's Statement of Cash Flows
2020
Operating Activities
Net Income before preferred dividends
Noncash adjustments
Depreciation and amortization
Due to changes in working capital
Change in accounts receivable
Change in inventories
Change in accounts payable
-57,081.6
70,176
-168,576
-343,296
107,040
Change in accruals
89,376
Net cash provided by operating activities
-302,361.6
Investing activities
Cash used to acquire fixed assets
Change in short-term nvestments
Net cash provided by investing activities
-427,170
17,160
-410,010
Financing Activities
Change in notes payatle
Change in long-term debt
Payment of cash dividends
Net cash provided by financing activities
312,000
405,940.8
-6,600
711,340.8
Net change in cash and equivilents
Cash and securities at beginning of the year
Cash and securities at end of the year
-1,030.8
5,400
4,369.2
Corporate Tax Rates
Plus this percentage
It pays this amount on
If a corporation's taxable income is between:
on the excess over
the base of the bracket:
the base
(1)
(2)
(3)
(4)
$0
$50,000
$0
15.0%
$50,000
$75,000
$7,500
25.0%
$75,000
S100,000
S13,750
34.0%
$100,000
S335,000
S22,250
39.0%
$335,000
$10,000,000
$113,900
34.0%
$10,000,000
$15,000,000
$3,400,000
35.0%
$15,000,000
$18,333,333
$5,150,000
38.0%
$18,333,333
and up
$6,416,667
35.0%

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.