Your employer also is considering the acquisition of Hatfield Medical Supplies. You have gathered the following data regarding Hatfield, with all dollars reported in millions: 

(1) most recent sales of $2,000; 

(2) most recent total net operating capital, OpCap = $1,120;

(3) most recent operating profitability ratio, OP = NOPAT/Sales = 4.5%; and 

(4) most recent capital requirement ratio, CR= OpCap/Sales = 56%. 

You estimate that the growth rate in sales from Year 0 to Year 1 will be 10%, from Year 1 to Year 2 will be 8%, from Year 2 to Year 3 will be 5%, and from Year 3 to Year 4 will be 5%. You also estimate that the long-term growth rate beyond Year 4 will be 5%.

Assume growth rates are at their original levels. What happens to the ROIC and current value of operations if the operating profitability ratio increases to 5.5%?

 Now assume growth rates and operating profitability ratios are at their original levels. What happens to the ROIC and current value of operations if the capital requirement ratio decreases to 51%?

Assume growth rates are at their original levels. What is the impact of simultaneous improvements in operating profitability and capital requirements? What is the impact of simultaneous improvements in the growth rates, operating profitability, and capital requirements?

Answer rating: 100% (QA)

To answer your questions lets first calculate the values of NOPAT Net Operating Profit After Taxes Sales and OpCap Total Net Operating Capital for each year based on the given growth rates Year 0 Sale... View the full answer