You're an industry analyst for the telecomm sector, and have been analyzing financial reports from two companies: CellT Corp. and Talk2Me Inc. The corporate tax rate for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you'll probably need for the analysis: Data Collected CellT Corp. Talk2Me Inc. EBIT $172,500 $122,820 Depreciation $69,000 $49,128 Total operating capital $1,014,300 $791,430 Net investment in operating capital $483,000 $255,300 WACC 8.84% 11.50% In your analysis, you want to look for several characteristics-one of them being the return on invested capital (ROIC). Using the information available, complete the following statements: • The net operating profit after tax (NOPAT) for CellT Corp. is , whereas the NOPAT for Talk2Me Inc. is • CellT Corp. has a free cash flow of , whereas, Talk2Me Inc. has cash flow of • CellT Corp. has a return on invested capital than Talk2Me Inc. has. Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true? O If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth. O If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.
You're an industry analyst for the telecomm sector, and have been analyzing financial reports from two companies: CellT Corp. and Talk2Me Inc. The corporate tax rate for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you'll probably need for the analysis: Data Collected CellT Corp. Talk2Me Inc. EBIT $172,500 $122,820 Depreciation $69,000 $49,128 Total operating capital $1,014,300 $791,430 Net investment in operating capital $483,000 $255,300 WACC 8.84% 11.50% In your analysis, you want to look for several characteristics-one of them being the return on invested capital (ROIC). Using the information available, complete the following statements: • The net operating profit after tax (NOPAT) for CellT Corp. is , whereas the NOPAT for Talk2Me Inc. is • CellT Corp. has a free cash flow of , whereas, Talk2Me Inc. has cash flow of • CellT Corp. has a return on invested capital than Talk2Me Inc. has. Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true? O If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth. O If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.
Chapter9: Accounting For Receivables
Section: Chapter Questions
Problem 4TP: You are considering two possible companies for investment purposes. The following data is available...
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Transcribed Image Text:You're an industry analyst for the telecomm sector, and have been analyzing financial reports from two companies: CellT Corp. and Talk2Me Inc. The
corporate tax rate for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you'll
probably need for the analysis:
Data Collected
CellT Corp.
Talk2Me Inc.
EBIT
$172,500
$122,820
Depreciation
$69,000
$49,128
Total operating capital
$1,014,300
$791,430
Net investment in operating capital
$483,000
$255,300
WACC
8.84%
11.50%
In your analysis, you want to look for several characteristics-one of them being the return on invested capital (ROIC). Using the information
available, complete the following statements:
• The net operating profit after tax (NOPAT) for CellT Corp. is
, whereas the NOPAT for Talk2Me Inc. is
• CellT Corp. has a free cash flow of
, whereas, Talk2Me Inc. has
cash flow of
• CellT Corp. has a
return on invested capital than Talk2Me Inc. has.
Transcribed Image Text:Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of
the following statements is true?
O If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments
in operating capital to support growth.
O If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments
in operating capital to support growth.
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