Last year Rattner Robotics had $5 million in operatingincome (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million,and its corporate tax rate was 40%. At year-end, it had $14 million in operating currentassets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable,and $15 million in net plant and equipment. Assume Rattner has no excess cash. Rattneruses only debt and common equity to fund its operations. (In other words, Rattner has nopreferred stock on its balance sheet.) Rattner had no other current liabilities. Assume thatRattner’s only noncash item was depreciation.a. What was the company’s net income?b. What was its net operating working capital (NOWC)?c. What was its net working capital (NWC)?d. Rattner had $12 million in net plant and equipment the prior year. Its net operatingworking capital has remained constant over time. What is the company’s free cashflow (FCF) for the year that just ended?e. Rattner has 500,000 common shares outstanding, and the common stock amount onthe balance sheet is $5 million. The company has not issued or repurchased commonstock during the year. Last year’s balance in retained earnings was $11.2 million, andthe firm paid out dividends of $1.2 million during the year. Develop Rattner’s end-ofyearstatement of stockholders’ equity.f. If the firm’s stock price at year-end is $52, what is the firm’s market value added (MVA)?g. If the firm’s after-tax percentage cost of capital is 9%, what is the firm’s EVA at year-end?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Last year Rattner Robotics had $5 million in operating
income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million,
and its corporate tax rate was 40%. At year-end, it had $14 million in operating current
assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable,
and $15 million in net plant and equipment. Assume Rattner has no excess cash. Rattner
uses only debt and common equity to fund its operations. (In other words, Rattner has no
preferred stock on its balance sheet.) Rattner had no other current liabilities. Assume that
Rattner’s only noncash item was depreciation.
a. What was the company’s net income?
b. What was its net operating working capital (NOWC)?
c. What was its net working capital (NWC)?
d. Rattner had $12 million in net plant and equipment the prior year. Its net operating
working capital has remained constant over time. What is the company’s free cash
flow (FCF) for the year that just ended?
e. Rattner has 500,000 common shares outstanding, and the common stock amount on
the balance sheet is $5 million. The company has not issued or repurchased common
stock during the year. Last year’s balance in
the firm paid out dividends of $1.2 million during the year. Develop Rattner’s end-ofyear
statement of stockholders’ equity.
f. If the firm’s stock price at year-end is $52, what is the firm’s market value added (MVA)?
g. If the firm’s after-tax percentage cost of capital is 9%, what is the firm’s EVA at year-end?
Trending now
This is a popular solution!
Step by step
Solved in 9 steps with 7 images
