Question

You are an industry analyst for the energy sector. You are analyzing financial reports from two companies: Black Gold Corp. and New Energy Inc. Corporate tax for both firms is 35%. Your associate analyst has calculated and compiled in the following table, a list of important figures you need for the analysis:

	Black Gold Corp.	New Energy Inc.
EBIT	$     268,800	$         112,000
Depreciation	$       92,004	$           33,660
Total operating capital	$  1,224,000	$         636,480
Net investment in operating capital	$     612,000	$         265,200
WACC	11.85%	11.88%

What is the free cash flow and ROIC for New Energy Inc.?

		$ -437,280 and 14.27%
		$72,800 and 11.44%
		$-192,400 and 11.44%
		$174,720 and 14.27%

Answer 1

- Calculating Free Cash flow for New Energy Inc.

Free Cash flow(FCF) = EBIT*(1-Tax rate) - Net investment in operating capital

FCF = $112,600*(1-0.35) - $265,200

FCF = -$192,010

- Calculating Return on Invested capital(ROIC) for New Energy Inc:-

ROIC = EBIT*(1-Tax rate)/Total operating capital(or Total Invested capital)

ROIC = $112,600*(1-0.35)/$636,480

ROIC = 11.44%

Option 3