After graduating from college in December 2014, Elizabeth Arce started her career at the W&T Corporation, a

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After graduating from college in December 2014, Elizabeth Arce started her career at the W&T Corporation, a small- to medium-sized warehouse distributor in Nashville, Tennessee. The company was founded by David Winston and Colin Tabor in 2000, after they had worked together in management at Wal-Mart. Although Arce had an offer from Sam's Club, she became excited about the opportunity with W&T. Winston and Tabor, as CEO and VP-marketing, respectively, assured her that she would be given every opportunity to take a leadership role in the business as quickly as she was prepared for the role.

In addition to receiving a competitive salary, Arce will immediately be entitled to a bonus based on how well the company does financially. The bonus is determined by the amount of Economic Value Added (EVA) that is generated in a year. To begin, she will receive 1 percent of the firm's EVA each year, to be paid half in stock and half in cash. In any year that the EVA is negative, she will not receive a bonus. Also, the firm's stock is traded publicly on the NYSE MKT, a stock exchange for small-cap companies.

The year of 2014 turned out to be a good year financially for the business. But in the ensuing year, 2015, the company experienced a 5.3 percent sales reduction, where sales declined from $5.7 million to $5.4 million. The downturn then led to other financial problems, including a 50 percent reduction in the company's stock price. The share price went from $36 per share at the end of 2014 to $18 per share at the conclusion of 2015!

Financial information for W&T for both years is shown on the next page, where all the numbers, except for per share data, are shown in $ thousands.

a. Using what you have learned in this chapter and Chapter 3, prepare a financial analysis of W&T, comparing the firm's financial performance between the 2Å years. In addition to the financial information provided on the next page, the company's chief financial officer, Mike Stegemoller, has estimated the company's average cost of capital for all its financing to be 10.5 percent.

b. What conclusions can you make from your analysis?

c. How much will Arce's bonus be in 2014 and 2015, in the form of both cash and stock? How many shares of the stock will Arce receive?

d. What recommendations would you make to management?

W&T Corporation Income Statement (in thousands)

After graduating from college in December 2014, Elizabeth Arce started

W&T Corporation Balance Sheet

After graduating from college in December 2014, Elizabeth Arce started
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Cost Of Capital
Cost 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...
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Foundations Of Finance

ISBN: 9780134083285

9th Edition

Authors: Arthur J. Keown, John H. Martin, J. William Petty

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