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Extensive Enterprise Inc.

Income Statement

January $1-$ December $31,$ Year $2$

Year $2$ Year $1$

Sales $$8,400,000$ $$8,000,000$

Expenses$1$

$6,720,0006,560,000$

EBITDA $$1,680,000$ $$1,440,000$

Depreciation and amortization expense $294,000280,000$

EBIT $$1,386,000$ $$1,160,000$

Interest expense $252,000200,000$

EBT $$1,134,000$ $$960,000$

Tax expense $(40\%)453,600384,000$

Net income $$680,400$ $$576,000$

Common dividends $$408,240$ $$345,600$

Addition to retained earnings $$272,160$ $$230,400$

$1$

Excludes depreciation and amortization Extensive Enterprise Inc.

Balance Sheet

December $31,$ Ye To facilitate your analysis, complete the following table, and use the results to answer the related questions. $($Note: Round all percentage change

answers to two decimal places. If a dollar value is below $$100,$ round your answer to two decimal places. If your answer is negative use a minus $(-)$

sign.$)$ Using the change in Extensive's EVA as the decision criterion, which type of investment recommendation should you make to your clients?

A sell recommendation

A hold recommendation

A buy recommendation Which of the following statements are correct? Check all that apply.

For any given year, one way to compute Extensive's EVA is as the difference between its NOPAT and the product of its operating capital

and its weighted average cost of capital.

Extensive's NCF is calculated by adding its annual interest expense to the corresponding year's net income.

The percentage change in Extensive's MVA indicates that its management has increased the firm's value.

The percentage change in Extensive's EVA indicates that management has decreased its value.

An increase in the number of common shares outstanding must increase the market value of the firm's equity.ar $2$

Assets: Year $2$ Year $1$

Cash and cash equivalents $$638,400$ $$456,000$

Receivables $2,128,0001,520,000$

Inventory $3,724,0002,660,000$

Current assets $$6,490,400$ $$4,636,000$

Net fixed assets $4,149,6002,964,000$

Total current assets $$10,640,000$ $$7,600,000$

Liabilities and Equity:

Accounts payable $$1,596,000$ $$1,140,000$

Accruals $1,037,400741,000$

Notes payable $2,234,4001,596,000$

Total current liabilities $$4,867,800$ $$3,477,000$

Long$-$term debt $2,048,2001,463,000$

Total liabilities $$6,916,000$ $$4,940,000$

Common stock $($$$1$ par$)744,800532,000$

Retained earnings $2,979,2002,128,000$

Total equity $$3,724,000$ $$2,660,000$

Total liabilities and equity $$10,640,000$ $$7,600,000$

Shares outstanding $744,800532,000$

Weighted average cost of capital $7\mathrm{.}98\%7\mathrm{.}30\%$

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