Reference no: EM13907643

1. What was Joe's NOPAT in 2013?

2. What was Joe's Free Cash Flow (FCF) in 2013? (Note: For this question, assume Joe obtained no new plant and equipment or additional net working capital in 2013. Thus his Net Investment in Operating Capital (NIOC) for 2013 is $0.00.)

3. Suppose you were an investor and you were considering whether to buy a corporate bond from Joe's Corporation or a Municipal Bond from the city of St. Louis. Joe's corporate bond has a yield of 7%. The St Louis city bond has a yield of 5%. The income from Joe's bond is taxable. The income from the St Louis city bond is tax-free. If your effective tax rate is 30%, which bond would give you the higher after-tax yield?

4. What was Joe's Net Worth at the end of 2013?

5. Why is the market value of a firm's stock almost always higher than the book value of the firm's stock as shown on the balance sheet?

6. a. Calculate Joe's ROE for 2013.

b Construct a Du Pont equation (use the extended, or modified version shown in the Week 1, chapters 2 & 3 lesson notes) and comment on the sources of Joe's ROE as revealed by the equation.

Joe's Fly-by-Night Oil
INCOME STATEMENT, 2013		BALANCE SHEET, as of Dec 31, 2013
Sales	$10,000	ASSETS
Cost of goods sold	$4	Cash	$5,000
Gross profit	$6,000	Accounts receivable	3,000
S, G & A expenses	$3	Inventory	$17
EBIT	$3,000	Current assets	$25,000
Interest	$200	Equipment (gross)	27,000
Before-tax earnings	$2,800	Less Accum Depreciation	($12)
Taxes	1	Equipment (net)	$15,000
Net income	1 800	Total assets	$40,000
		LIABILITIES AND EQUITY
EPS	$1.80	Accounts payable	$17,000
		Current liabilities	$17,000
Dtidends	$600	Long-term debt	$3,000
Addition to retained earnings	$1,200	Total liabilities	$20,000
		Common stock (1,000 shares)	$7,000
		Retained earnings	$13,000
		Total equity	$20,000
		Total liabilities & Equity	$40,000