Question

In: Accounting

For 2019, MB Corp. reported net sales of $ 830 million, 8% up from the previous...

  1. 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

ekkarill92 answered 1 year ago
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