Managerial Finance

Problem Set #1
Computron Inc. is a public corporation specializing in software manufacturing. The company designs and develops software programs that allow users to create their own documents, apps, animations, and other media content. The company’s sales revenue and profit margins have decreased over the years because of the Covid-19 pandemic and complaints of some parents about the effect of video games on their kids’ social life and academic performance.
The company recently hired Jenny Cochran, a graduate of UC to assist the chairman of the board to turnaround the fortunes of the company. Cochran recommendations included doubling the plant capacity, opening new sales offices outside the home territory, and launching an expensive advertising campaign to boost cash flows and stock price. Cochran believes that undertaking of such capital budgeting projects would increase sales, net income, and free cash flows to boost the stock price.
The corporate tax rate is 40%.
The following financial statement and reports were made available by the finance department for analysis:

Computron’s Income Statement

2019

2020

Net sales

2,059,200

3,500,640

Cost of Goods Sold

1,718,400

2,988,000

Other Expenses

204,000

432,000

Depreciation and amortization

11,340

70,176

Total Operating Costs

1,933,740

3,490,176

Earnings before interest and taxes (EBIT)

125,460

10,464

Less interest

37,500

105,600

Pre-tax earnings

87,960

(95,136)

Taxes (40%)

35,184

(38,054)

Net Income

52,776

(57,082)

Computron’s Balance Sheet

Assets

Cash and equivalents

5,400

4,369

Short-term investments

29,160

12,000

Accounts receivable

210,720

379,296

Inventories

429,120

772,416

Total current assets

674,400

1,168,081

Gross fixed assets

294,600

721,770

Less: Accumulated depreciation

87,720

157,896

Net plant and equipment

206,880

563,874

Total assets

881,280

1,731,955

Liabilities and equity

Accounts payable

87,360

194,400

Notes payable

120,000

432,000

Accruals

81,600

170,976

Total current liabilities

288,960

797,376

Long-term bonds

194,059

600,000

Common Stock

276,000

276,000

Retained Earnings

122,261

58,579

Total Equity

398,261

334,579

Total Liabilities and Equity

881,280

1,731,955

a. Explain to the chairman of the board  three  properties of future cashflows that would likely help increase Computron’s value.
b. What is Computron’s net operating profit after taxes (NOPAT) for 2020?
c. Calculate Computron’s free cash flow for 2020 if net investment in total operating capital is $671,419.
d. Explain to the chairman of the board  five  uses of free cash flow to help maximize the value of the firm.
e. Explain Economic Value Added (EVA) and compute Computron’s EVA for 2020 if total net operating capital is $1,354,579? The company’s weighted average cost of capital (WACC) is 10.0%.
f. Calculate the following  profitability ratios  for Computron in 2020:
g.
i. Operating profit margin
ii. Return on assets (ROA)
iii. Return on equity (ROE)
iv. Basic Earning Power (BEP)
h. Calculate the following  asset management ratios  for Computron in 2020:
i. total assets turnover
ii. Days sales outstanding (DSO)
i. Calculate the following  liquidity and debt management ratios  for Computron in 2020:
iii. Current ratio
iv. Quick ratio
v. Debt-to-assets ratio
vi. Times-interest earned ratio
j. Given the following industry ratios for 2020, how do you evaluate the financial performance of Computron ( poor or  better ) and explain:

a. Operating profit margin

7.20%

b. Basic Earning Power

15.60%

c. ROE

15.40%

d. Return on Assets

10.80%

e. Total Assets turnover

1.5

f. Days sales outstanding

28.00

g. Current ratio

2.50

h. Quick ratio

1.90

i. Debt-to-assets ratio

15%

j. Times-interest-earned

13.00

i. Computron has a negative free cash flow in 2020. The financial manager explains to the board that there is nothing wrong with value-adding growth, even if it causes negative free cash flows in the short-term. Using return on invested capital (ROIC) performance evaluation approach, determine whether Cochran’s recommendation is adding value. Total operating capital of the company is $1,354,579 and WACC is 10%.
Submit your answers in a Word document.

QUALITY: 100% ORIGINAL PAPER NO ChatGPT.NO PLAGIARISMCUSTOM PAPER

Best Custom Essay Writing Services

Looking for unparalleled custom paper writing services? Our team of experienced professionals at AcademicWritersBay.com is here to provide you with top-notch assistance that caters to your unique needs.

We understand the importance of producing original, high-quality papers that reflect your personal voice and meet the rigorous standards of academia. That’s why we assure you that our work is completely plagiarism-free—we craft bespoke solutions tailored exclusively for you.

Why Choose AcademicWritersBay.com?

  • Our papers are 100% original, custom-written from scratch.
  • We’re here to support you around the clock, any day of the year.
  • You’ll find our prices competitive and reasonable.
  • We handle papers across all subjects, regardless of urgency or difficulty.
  • Need a paper urgently? We can deliver within 6 hours!
  • Relax with our on-time delivery commitment.
  • We offer money-back and privacy guarantees to ensure your satisfaction and confidentiality.
  • Benefit from unlimited amendments upon request to get the paper you envisioned.
  • We pledge our dedication to meeting your expectations and achieving the grade you deserve.

Our Process: Getting started with us is as simple as can be. Here’s how to do it:

  • Click on the “Place Your Order” tab at the top or the “Order Now” button at the bottom. You’ll be directed to our order form.
  • Provide the specifics of your paper in the “PAPER DETAILS” section.
  • Select your academic level, the deadline, and the required number of pages.
  • Click on “CREATE ACCOUNT & SIGN IN” to provide your registration details, then “PROCEED TO CHECKOUT.”
  • Follow the simple payment instructions and soon, our writers will be hard at work on your paper.

AcademicWritersBay.com is dedicated to expediting the writing process without compromising on quality. Our roster of writers boasts individuals with advanced degrees—Masters and PhDs—in a myriad of disciplines, ensuring that no matter the complexity or field of your assignment, we have the expertise to tackle it with finesse. Our quick turnover doesn’t mean rushed work; it means efficiency and priority handling, ensuring your deadlines are met with the excellence your academics demand.

ORDER NOW and experience the difference with AcademicWritersBay.com, where excellence meets timely delivery.

NO PLAGIARISM
error: Content is protected !!