Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Extensive Enterprise Inc. to determine how Extensive's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Extensive's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Extensive Enterprise Inc. Income Statement January 1 - December 31, Year 2 Year 2 $7,350,000 5,880,000 $1,470,000 257,250 $1,212,750 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT Tax expense (40%) Net income Common dividends Addition to retained earnings Excludes depreciation and amortization Year 1 $7,000,000 5,740,000 $1,260,000 245,000 $1,015,000 175,000 $840,000 336,000 $504,000 $302,400 220,500 $992,250 396,900 $595,350 $357,210 $238,140 $ 201,600 Extensive Enterprise Inc. Balance Sheet December 31, Year 2 Year 2 Year 1 $438,900 $399,000 1,463,000 1,330,000 2,560,250 $4,462,150 2,327,500 $4,056,500 2,593,500 2,852,850 $7,315,000 $6,650,000 $1,097,250 $997,500 713,213 Assets: Cash and cash equivalents Receivables Inventory Current assets Net fixed assets Total current assets Liabilities and Equity: Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock ($1 par) Retained earnings Total equity Total liabilities and equity Shares outstanding Weighted average cost of capital 648,375 1,396,500 1,536,150 $3,346,613 1,408,138 $4,754,750 512,050 2,048,200 $3,042,375 1,280,125 $4,322,500 465,500 1,862,000 $2,327,500 $6,650,000 $2,560,250 $7,315,000 512,050 465,500 7.98% 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use a minus (-) sign.) Year 2 Year 1 Percentage Change $7,350,000 % $7,000,000 $504,000 $595,350 % S $749,000 % Company Growth and Performance Metrics Metric General Metrics Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $2,651,687 89 % $1.08 % $0.70 $ % $ $5.00 0.00% 69 $ 3.73% $20.74 $19.75 % Year 2 Year 1 Percentage Change Metric MVA Calculation Market value of equity Book value of equity Market Value Added (MVA) 15.51% $2,560,250 % $2,327,500 $6,866,125 $ % Year 2 Year 1 Percentage Change $727,650 % $ $ 10.00% Metric EVA Calculation Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) 7.98% 7.30% $ 20.25% % % 8.63% $288,438 $ % Using the change in Extensive's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A hold recommendation O A sell recommendation O A buy recommendation Which of the following statements are correct? Check all that apply. Extensive's NCF is calculated by adding its annual depreciation and amortization expense to the corresponding year's EBITDA. Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments. The percentage change in Extensive's EVA indicates that management has increased its value. For any given year, one way to compute Extensive's EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital. The percentage change in Extensive's MVA indicates that its management has increased the firm's value. Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Extensive Enterprise Inc. to determine how Extensive's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Extensive's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Extensive Enterprise Inc. Income Statement January 1 - December 31, Year 2 Year 2 $7,350,000 5,880,000 $1,470,000 257,250 $1,212,750 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT Tax expense (40%) Net income Common dividends Addition to retained earnings Excludes depreciation and amortization Year 1 $7,000,000 5,740,000 $1,260,000 245,000 $1,015,000 175,000 $840,000 336,000 $504,000 $302,400 220,500 $992,250 396,900 $595,350 $357,210 $238,140 $ 201,600 Extensive Enterprise Inc. Balance Sheet December 31, Year 2 Year 2 Year 1 $438,900 $399,000 1,463,000 1,330,000 2,560,250 $4,462,150 2,327,500 $4,056,500 2,593,500 2,852,850 $7,315,000 $6,650,000 $1,097,250 $997,500 713,213 Assets: Cash and cash equivalents Receivables Inventory Current assets Net fixed assets Total current assets Liabilities and Equity: Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock ($1 par) Retained earnings Total equity Total liabilities and equity Shares outstanding Weighted average cost of capital 648,375 1,396,500 1,536,150 $3,346,613 1,408,138 $4,754,750 512,050 2,048,200 $3,042,375 1,280,125 $4,322,500 465,500 1,862,000 $2,327,500 $6,650,000 $2,560,250 $7,315,000 512,050 465,500 7.98% 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use a minus (-) sign.) Year 2 Year 1 Percentage Change $7,350,000 % $7,000,000 $504,000 $595,350 % S $749,000 % Company Growth and Performance Metrics Metric General Metrics Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $2,651,687 89 % $1.08 % $0.70 $ % $ $5.00 0.00% 69 $ 3.73% $20.74 $19.75 % Year 2 Year 1 Percentage Change Metric MVA Calculation Market value of equity Book value of equity Market Value Added (MVA) 15.51% $2,560,250 % $2,327,500 $6,866,125 $ % Year 2 Year 1 Percentage Change $727,650 % $ $ 10.00% Metric EVA Calculation Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) 7.98% 7.30% $ 20.25% % % 8.63% $288,438 $ % Using the change in Extensive's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A hold recommendation O A sell recommendation O A buy recommendation Which of the following statements are correct? Check all that apply. Extensive's NCF is calculated by adding its annual depreciation and amortization expense to the corresponding year's EBITDA. Investor-supplied operating capital is recorded as accounts payable, accruals, and short-term investments. The percentage change in Extensive's EVA indicates that management has increased its value. For any given year, one way to compute Extensive's EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital. The percentage change in Extensive's MVA indicates that its management has increased the firm's value