Question
In: Accounting
For 2019, MB Corp. reported net sales of $ 830 million, 8% up from the previous...
- For 2019, MB Corp. reported net sales of $ 830 million, 8% up from the previous year. Its operating profit (EBIT) amounted to $ 80 million in the same period. Due to substantial investments in net working capital, the company’s net book value grew from $ 430 million to $ 460 million, while net fixed assets remained stable at $ 260 million. However, the firm managed to maintain its capital structure with a debt to equity ratio of 0.75 and a 40% Equity Ratio.
Assuming a corporate income tax rate of 25% and interest rate of 4.0%, please determine the following:
o Net Profit Margin (5 points)
o Working Capital Requirement (WCR) and working capital ratio over sales for 2018 (5 points)
o Post-tax Return On Invested Capital (ROIC) for 2019 (10 points)
o Free Cash Flow (FCF) for 2019 (10 points)
Solutions
Expert Solution
ANS 1
Q2 ANS -
working Capital Requirement = Old working capital / old Sales
= 430/(830/108%)
= 55.95 or 56% approx
New working capital ratio to sale = 460/830*100
= 55.42 or 55% Approx
Q3 Ans
= 53.52/460*100
=11.63% or 12% approx
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