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Homework answers / question archive / You are an industry analyst for the energy sector
You are an industry analyst for the energy sector. You are analyzing financial reports from hvo companies: Black Gold Corp. and New Energy Inc. Corporate tax for both fimu is 35.. Your associate analyst has calculated and compiled in the following table, a list of important figures you need for the analysis:
Black Gold Corp. New Energy Inc.
EB1T $ 278,800 S 102,000 Depreciation $ 92,004 S 33,660 Total operating capital $ 1,224,000 S 636.480 Net investment in operating capital $ 612,000 S 265,200 WACC 11.85% 11.88%
What is the free cash flow and I:201C for New Energy Inc.?
$66,300 and 10.42% S-198,900 and 10.42% $ -430.780 and 14.81% $181.220 and 14.81%
Computation of Free Cash Flow:
Free Cash Flow = EBIT *(1 - Tax Rate) + Depreciation - Investment in Fixed Assets - Net Investment in Operating Capital
= $102,000 *(1 - 0.35) + $33,660 - $265,200
= $66,300 + $33,660 - $265,200
= $99,960 - $265,200
= -$165,240
Computation of Return on Invested Capital:
Return on Invested Capital = EBIT*(1 - Tax rate) / Total operating capital
= $102,000*(1 - 0.35) / $636,480
= $66,300 / $636,480
= 10.42%
Free cash flow -$165,240 and ROIC 10.42%
