Answer:
1.J&H Corp’s NOPAT is $3,744,000, which is $936,000 lower than industry average of $4,680,000
2.Net operating working capital of $18,000 is been used by the company.
3.J&H Corp will be generating $5,019,600 in net cash flow from its operations and an accounting profit of $3,369,600
4.Therefore the firm uses $978,000 of total net operating capital to run the business.
Explanation:
J&H Corp
1. Calculation for NOPAT
NOPAT = 6,240,000 x (1- 40%)
= 6,240,000 x (1 – 0.4)
= 6,240,000 x 0.6
= $3,744,000
Calculation for Industry Average
Industry Average= 7,800,000 x (1- 40%)
7,800,000×(1-0.4)
7,800,000×0.6
=$4,680,000
Hence:
($4,680,000-$3,744,000)=$936,000
J&H Corp’s NOPAT is $3,744,000, which is $936,000 lower than industry average of $4,680,000
2:Calculation for Net Operating Working Capital
Net Operating Working Capital= Current Operating Assets − Current Operating Liabilities
Net Operating Working Capital= (Cash + Accounts Receivable + Inventories)− (Accounts Payable + Accrued Expenses)
Short term investments won't be included in Current Operating Assets
Given current assets = $600,000 ×12% in Short term investments = $72,000
Therefore Current Operating Assets will be: 600,000 – 72,000 = $528,000
Current Operating Liabilities = $510,000
Net Operating Working Capital
= $528,000 - $510,000 = $18,000
Net operating working capital of $18,000 is been used by the company.
3. Calculation for Net cash flow operations
Net cash flow from operations = Net income + Depreciation & Amortization + Changes in Working Capital
Changes in working capital = Working capital of the year
= $600,000 - $510,000
= $90,000
Net cash flow from operations will be:
$3,369,600 + $1,560,000 + $90,000 = $5,019,600
The Accounting profit will be the total revenue less the explicit costs
Explicit costs includes operating expenses, depreciation, interest and taxes.
Hence, the Accounting Profit will be :
Net income = $3,369,600
J&H Corp will be generating $5,019,600 in net cash flow from its operations and an accounting profit of $3,369,600
4. Calculation for the Total net operating capital
Total net operating capital = Net Operating Working Capital + Non-current Operating Assets
$528,000 - $510,000 = $18,000
Net Operating Working Capital = $18,000
Non-current Operating Assets = operating long term assets = $960,000
Total net operating capital
= $18,000 + $960,000
= $978,000
Therefore the firm uses $978,000 of total net operating capital to run the business. Thus the value is been computed as the sum of J&H Corp’s net operating working capital and its Non-current Operating Assets.
