Business, 08.04.2020 05:05 mashcroft2002

You’re an industry analyst for the telecomm sector, and have been analyzing financial reports from two companies: CellT Corp. and Talk2Me Inc. The corporate tax rate for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you’ll probably need for the analysis:

Data Collected

CellT Corp.

Talk2Me Inc.

EBIT $132,500 $94,340
Depreciation $53,000 $37,736
Total operating capital $779,100 $607,910
Net investment in operating capital $371,000 $196,100
WACC 8.84% 11.50%
In your analysis, you want to look for several characteristics—one of them being the return on invested capital (ROIC). Using the information available, complete the following statements:

• The net operating profit after tax (NOPAT) for CellT Corp. is , whereas the NOPAT for Talk2Me Inc. is .
• CellT Corp. has a free cash flow of , whereas, Talk2Me Inc. has a free cash flow of .
• CellT Corp. has a return on invested capital than Talk2Me Inc. has.
Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true?

a. If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.

b. If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.

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