ALPHA ONE SOFTWARE CORPORATION

INCOME STATEMENT $2019$

Net sales $$1,500,000$

Cost of goods sold $-850,000$

Gross profit $650,000$

General and administrative expenses $-250,000$

Marketing $-206,000$

Depreciation $-50,000$

Earnings before interest and taxes $144,000$

Interest $-84,000$

Earnings before taxes $60,000$

Income taxes $(40\%$ rate$)-24,000$

Earnings after taxes $ $36,000$

Chapter $7$ Types and Costs of Financial Capital

Alpha One Software Corporation $($Continued$)$

BALANCE SHEET $2019$

Cash $ $20,000$

Accounts receivable $-50,000$

Inventories $350,000$

Total current assets $620,000$

Fixed assets, net $480,000$

Total assets $$1,100,000$

Accounts payable $ $125,000$

Accrued liabilities $125,000$

Notes payable $100,000$

Total current liabilities $350,000$

Long$-$term debt $500,000$

Common stock $(20,000$ shares$)100,000$

Retained earnings $150,000$

Total liabilities and equity $$1,100,000$

A$.$ Calculate Alpha One$$s net operating profit after taxes $($NOPAT$).$ Why does the NOPAT differ from the earnings after taxes?

B$.$ Estimate the effective before$-$tax cost of the long$-$term debt.

C$.$ Estimate the effective after$-$tax cost of the bank loan and the long$-$term debt.

D$.$ Estimate the cost of common equity capital.

E$.$ Determine the financial structure weights from Alpha One$$s $2019$ financial statements for the two interest$-$bearing debt components and the common equity.

F$.$ Calculate Alpha One$$s WACC.

G$.$ Determine the dollar cost of financial capital used.

H$.$ Estimate Alpha One$$s economic value added $($EVA$).$ Did Alpha One build or destroy economic value in $2019?$