Q2. Consider the balance sheets and selected data from the income statement of Keith Corporation that appear below:

Assets December 31

2020 2019

Cash 1,500 1,000

Marketable Securities 1,800 1,200

Accounts receivables 2,000 1,800

Inventories 2,900 2,800

Total Current Assets 8,200 6,800

Gross Fixed Assets 29,500 28,100

Less: Accumulated Depreciation 14,700 13,100

Net Fixed Assets 14,800 15,100

Total Assets 23,000 21,800

Liabilities and Stockholders Equity

Accounts payable 1,600 1,500

Notes payable 2,800 2,200

Accruals 200 300

Total Current Liabilities 4,600 4,000

Long-Term Debt 5,000 5,000

Total liabilities 9,600 9,000

Common Stock 10,000 10,000

Retained earnings 3,400 2,800

Total Stockholders equity 13,400 12,800

Total liab. And stockholders equity 23,000 21,800

Keith Corporations Income Statement (2020)

Depreciation Expense 1,600

Earning Before Interest and Taxes (EBIT) 2,700

Interest Expense 367

Net Profit After Taxes 1,400

Tax Rate 40%

a. Calculate the free cash flow (FCF) for the year ended December 31, 2020?

b. Compute Return on invested capital for 2020? If the cost of capital is 10%, how is the firm performing? Discuss.

c. Compute Capital requirement ratio (CRR) and Economic Value Added (EVA) and comment on capacity utilization by this firm as well as, are they adding any value in economic sense. What does that tell you about the strength and the weakness of this firm.