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11. Evaluating free cash flows and return on invested capital You're an industry and to the telecomm sector, and have been analyzing facial reports from two companies: Talker Corp. and MobileTalk 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 Talker Corp. EBIT $115,000 Depreciation $46,000 Total operating capital $676,200 Net investment in operating capital $322,000 WACC 8.84% MobileTalk Inc. $81,880 $32,752 $527,620 $170,200 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 Talker Corp. is , whereas the NOPAT for MobileTalk Inc. is Talker Corp. has a free cash flow of , whereas, MobileTalk Inc. has a free cash flow of Talker Corp. has a return on invested capital than MobileTalk 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? IF ROIC is greater than the rate of return that investors require, which is the weighted average cost of capital (WACC), then the firm is adding value. If ROIC is less than the rate of return that investors require, which is the weighted average cost of capital (WACC), then the firm is adding value

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