Following are the balance sheets at year-end 2009 and 2010 followed by the 2010 income statement of
Question:
Following are the balance sheets at year-end 2009 and 2010 followed by the 2010 income statement of Sactor Inc. The annual report for year 2010 provides the following supplemental information:
1. The restructuring charge of $43 million, amounted to $28 million after tax
2. Accumulated goodwill impairment was $98 million at the end of 2009 and $93 million at the end of 2010. Goodwill impairment was $22 million in 2010, or $14 million after tax
3. The accounts receivable are net of bad debt allowance. At the end of 2009, the accumulated bad debt allowance was $26 million; at the end of 2010, it was $30 million
4. In 2009, the firm had a nonoperating extraordinary loss of $35 million after tax
a. Compute the unadjusted invested capital of Sactor Inc. at year-end 2009 and year-end 2010. Compute also the firm's net operating profit after tax (NOPAT).
b. Adjust the amounts of invested capital and NOPAT for accounting distortions.
c. Assuming a weighted average cost of capital of 10 percent, what was Sactor's economic value added in 2010?
Income Statement (in millions)
2010
Net sales……………………………………………… $2,888
Cost of goods sold…………………………………… 2,167
Selling, general, and administrative expenses…… 434
Restructuring charge…………………………………… 43
Earnings before interest and tax…………………… $ 244
Interest expense……………………………………….. 62
Earnings before tax……………………………………….. $ 182
Income tax expense……………………………………….. 64
Earnings after tax……………………………………….. $ 118
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Step by Step Answer:
Finance for Executives Managing for Value Creation
ISBN: 978-0538751346
4th edition
Authors: Gabriel Hawawini, Claude Viallet