Below are the financial statements for the Guernica Incorporated (dollars and number of shares are in thousands). Assume Guernica shares are priced at $40 per share.

1. (5 points) What is Guernica's 2019 MVA? In your own words, briefly explain what MVA tells us about the firm's performance.

2. 5 points) What is Guernica?s 2019 EVA? Assume that the firm's weighted cost of capital is 10%. In your own words, what does EVA tell us about the firm?s performance? Has Guernica management performed well?

3. (5 points) What is Guernica's free cash flow for 2019?

d (5 points) Free cash flow is the cash flow available to security holders after all profitable investments have been made by the firm. How much of the free cash flow went to debt holders in terms of interest and repurchases of debt? How much went to equity holders in terms of dividends and repurchases of stock?

Transcribed Image Text:

BALANCE SHEETS AS OF DECEMBER 31 2019 2018 Cash 15,000 13,000 Accounts receivable 31,000 28,000 Inventories 29,125 27,600 Total current assets 75,125 68,600 Net plant and equipment 62,000 137,125 60,000 128,600 TOTAL ASSETS Accounts payable 15,800 12,900 Notes payable 10,700 13,500 Accruals 11,600 10,400 Total current liabilities 38,100 36,800 Long-term bonds 10,000 10,000 Total debt 48,100 46,800 Common stock (5,000 shares) 50,000 50,000 Retained earnings 39,025 31,800 Total common equity 89,025 81,800 TOTAL LIABILITIES AND EQUITY 137,125 128,600 INCOME STATEMENT FOR YEAR ENDING DECEMBER 31, 2019 Sales 225,200 Operating costs 180,000 Depreciation & amortization 20,000 Earnings before interest & taxes 25,200 Interest 1,750 Taxable income 23,450 Taxes (25%) 5,863 17,588 Net income Dividends to shareholders 10,362.50 BALANCE SHEETS AS OF DECEMBER 31 2019 2018 Cash 15,000 13,000 Accounts receivable 31,000 28,000 Inventories 29,125 27,600 Total current assets 75,125 68,600 Net plant and equipment 62,000 137,125 60,000 128,600 TOTAL ASSETS Accounts payable 15,800 12,900 Notes payable 10,700 13,500 Accruals 11,600 10,400 Total current liabilities 38,100 36,800 Long-term bonds 10,000 10,000 Total debt 48,100 46,800 Common stock (5,000 shares) 50,000 50,000 Retained earnings 39,025 31,800 Total common equity 89,025 81,800 TOTAL LIABILITIES AND EQUITY 137,125 128,600 INCOME STATEMENT FOR YEAR ENDING DECEMBER 31, 2019 Sales 225,200 Operating costs 180,000 Depreciation & amortization 20,000 Earnings before interest & taxes 25,200 Interest 1,750 Taxable income 23,450 Taxes (25%) 5,863 17,588 Net income Dividends to shareholders 10,362.50

Answer rating: 100% (QA)

a MVRs Mankuk copitalizalim Capital laplayed 89025ono loomono Somono x 40 MVA ... View the full answer