Question

You’re an industry analyst for the telecom sector and have been analyzing financial reports from two companies: BlastTel Inc. and SaneTel Corp. 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

	BlastTel Inc.	SaneTel Corp.
EBIT	$107,500	$76,540
Depreciation	$43,000	$30,616
Total operating capital	$632,100	$493,210
Net investment in operating capital	$301,000	$159,100
WACC	8.84%	11.50%

1. 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:

•	BlastTel Inc. has a (higher/lower) free cash flow than SaneTel Corp. does.
•	The net operating profit after tax (NOPAT) for BlastTel Inc. is $______, whereas the NOPAT for SaneTel Corp. is $_____.
•	BlastTel Inc. has a return on invested capital of $_____, whereas, SaneTel Corp. has a return on invested capital of $______.

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

Answer 1

Calculation is given in the below attached images