Josh, your newly appointed boss, has tasked you with evaluating the following financial data for Galaxy Corp. to determi

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Josh Your Newly Appointed Boss Has Tasked You With Evaluating The Following Financial Data For Galaxy Corp To Determi 1 (55.1 KiB) Viewed 39 times

Josh, your newly appointed boss, has tasked you with evaluating the following financial data for Galaxy Corp. to determine how Galaxy'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 Galaxy'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. Galaxy Corp. Income Statement January 1 - December 31, Year 2 Year 2 $2,700,000 Year 1 $2,250,000 2,160,000 1,845,000 $540,000 Sales Expenses EBITDA Depreciation and amortization expense EBIT Interest expense EBT $405,000 78.750 94,500 $445,500 $326,250 81,000 56,250 $364,500 $270,000 145,800 108,000 Tax expense (40%) Net income $218,700 $162,000 Common dividends $131,220 $97,200 $87,480 $64,800 Addition to retained earnings 1 Excludes depreciation and amortization Galaxy Corp. Balance Sheet December 31, Year 2 Year 2 Year 1 $128,250 Assets: Cash and cash equivalents Receivables Inventory $141,075 470,250 427,500 822,938 748,125 Current assets 51,434,263 $1,303,875 Net fixed assets 916,987 833,625 $2,351,250 $2,137,500 Total current assets Liabilities and Equity: $320.625 $352,688 229,247 208,406 493,763 448,875 Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock (si par) $977,906 $1,075,698 452,616 411,469 $1,389,375 $1,528,313 164,587 149,625 Retained earnings 658,350 598,500 Total equity $822,937 $748,125 52,351,250 $2,137,500 Total liabilities and equity Shares outstanding Weighted average cost of capital 164,587 149,625 7.30% 7.98%
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.) Company Growth and Performance Metrics Metric General Metrics Year 2 Year 1 Percentage Change Sales $2,700,000 $2,250,000 % Net income $218,700 $162,000 90 $ $240,750 % 5852,328 $ % $1.08 % 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 $0.80 S % $ $5.00 0.00% $ S 18.01% $21.73 $19.75 % Year 2 Year 1 Percentage Change Metric MVA Calculation Market value of equity Book value of equity Market Value Added (MVA) $ 21.03% $822,937 $748,125 % $ $2,206,969 % Metric Year 2 Year 1 Percentage Change $267,300 % % $ $ 10.00% 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) 7.98% 7.30% $ $ 20.25% 9 % 24.16% Economic Value Added (EVA) $126,152 $ % Using the change in Galaxy's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A sell recommendation A O A hold recommendation O A buy recommendation Which of the following statements are correct? Check all that apply. The percentage change in Galaxy's MVA indicates that its management has increased the firm's value. The percentage change in Galaxy's EVA indicates that management has increased its value. For any given year, one way to compute Galaxy's EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital. An increase in the number of common shares outstanding must increase the market value of the firm's equity. Galaxy's NCF is calculated by adding its annual depreciation and amortization expense to the corresponding year's EBITDA.