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 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...