In: Accounting
Quantify the Effects of Managerial Actions on ROPI and
Components
BCS Enterprises reports the following financial data just prior to
its fiscal year ended June 30, 2017 ($ millions).
BCS Enterprises | |||
---|---|---|---|
Balance Sheet | |||
Cash | $300 |
Accounts payable |
$900 |
Accounts receivable | 900 |
Long-term debt |
1,800 |
Inventory | 1,500 | ||
Property, plant & equipment | 3,000 |
Equity |
3,000 |
Total assets | $5,700 |
Total liabilities and equity |
$5,700 |
Actual | Forecasted | |
---|---|---|
June 2017 | June 2018 | |
Sales | $3,600 | $3,930 |
NOPAT | $630 | $648 |
NOA | $4,500 | $4,635 |
WACC | 7% |
a. Compute ROPI for FY2017 and FY2018. Net operating assets (NOA)
at June 30, 2016 were $4,050.
Round answers to one decimal place, if applicable.
2017 | 2018 | |
---|---|---|
ROPI | Answer | $Answer |
b. The company is contemplating taking the following actions before
the end of June 2017. (These actions are not reflected in any of
the financial data reported above.) For each of the actions,
determine the effect on residual operating income for the fiscal
year ended June 30, 2018.
Reduce inventory by 10% which reduces accounts payable by 5%.
Decrease property, plant and equipment (PPE) by 20% with no consequent impact on NOPAT.
Engage in a sale leaseback of a major building. The company will sell 50% of its PPE at book value and increase rental costs by $90 after tax, per year.
Increase debt $900, which increases interest expense by $45.
Round answers to one decimal place, if applicable.
Actual | Forecasted | Action | |||||
---|---|---|---|---|---|---|---|
June 2017 | June 2018 | 1 | 2 | 3 | 4 | ||
NOPAT | $Answer | $Answer | Answer | Answer | Answer | Answer | |
NOABeg | Answer | $Answer | Answer | Answer | Answer | Answer | |
ROPI | Answer | $Answer | Answer | Answer | Answer | Answer |