Name________________

Reading Quiz for Chapters 10 and 11:

1. Melvin Enterprises has three divisions television streaming, theme parks, and internet broadband. Why should we value each of these divisions independently?

1. Continuing from the prior question, assume the television division is valued at $25 billion, the theme parks are valued at $18 billion, and the internet broadband business is valued at $40 billion. Additionally, the corporate overhead overseeing all these divisions is a negative $3 billion. What is the enterprise value of Melvin Enterprise?

1. What comes first in estimating the value of a company, the reformatting of the income statement or the discounting of free cash flows?

1. Maxwell Corporation estimates its Net Operating Profit after Taxes (NOPAT) for the coming year to be $100. Additionally, it estimates depreciation expense of $15, additional investment in net operating working capital to be $25 and additional investment in plant, property, and equipment to be $30. What is the expected Free Cash Flow (FCF) for Maxwell Corporation for the coming year?
2. Sally Corporation has the following traditional balance sheet:

Traditional Balance Sheet Sally Corp:

Cash needed for operations 300 Accounts payable 500

Excess cash 600 Accrued expenses 350

Inventory 600 Current portion of Long-term debt 150

Investment in marketable securities 400 Long term debt 1200

Plant property and Equipment 1400 Stockholders Equity 1100

Total assets 3300 3300

What is Sally Corporation’s invested capital?

1. Sally Corporation has the following traditional income statement:

Traditional Income Statement:

Sales +2700

Cost of goods sold -1800

Depreciation -250

Selling and administrative – 340

Interest received or earned + 50

Interest paid or expense – 180

Pretax income t 180

Taxes at 20% 36

Net income 144

What is Sally Corporation’s NOPAT?

1. Using the numbers in the prior two questions, what is Sally Corporation’s ROIC?

1. When reorganizing the balance sheet what should we do with excess cash? How do we determine what level of cash is operating and what level is excess?

1. Why do we net (or back out) the accounts payable and accrued expenses in arriving at net working capital and then invested capital?

1. Do the authors suggest using the operating tax rate or statutory tax rate in modeling the reorganized statements?