Construction Management
Track Software Inc
Integrative Case Assignment 1
Rey-Anne Paynter808000390 2/19/2013
a. (1) Stanley’s focus is o n maximizing profits. This is the correct goal because the goal of anyfirm, and therefore its financial manager, should be to maximize its value and by extensionthe wealth of the shareholders.
(2) There is potential for an agency problem if Stanley decides to go ahead and invest in thesoftware developer. This investment will cause a temporary decrease in the earnings per share (EPS) of the firm which will mean fewer earnings at the present time for thestakeholders. This may be a problem if the goal of the shareholders is to gain moneysooner than later. However, it the goal of the shareholders is simply to maximize wealth,there may not be an agency problem since the goal of the financial manager, Stanley, is the same as the shareholders’.
b. Since there is no preferred stock; Earnings available for common stockholders= Net Profit After Taxes
No of shares of common stock outstanding = 50 000
EPS = NPAT/ no. of shares of common stock outstanding
EPS show a steady increase over the past five years indicating that Stanley is achieving hisgoal of maximizing profits.
c. Operating Cash Flow
(OCF) for 2012OCF = {Earnings Before Interest and Taxes×(1– Tax rate)} + Depreciation
OCF = {EBIT × (1– T)} + Depreciation
= {$89 000 × (1 – 0.20)} + $11 000
= $82 200
Free Cash Flow (FCF) for 2012
FCF = OCF1– Net Fixed Assets Investments – Net Current Assets Investment
FCF = OCF – NFAI – NCAI
NFAI = Change in net fixed assets + Depreciation= ($132 000– $128 000) + $11000
= $15 000
NCAI = Chance in current assets – Change in (Accounts Payable + Accruals)
= ($421 000 – $62 000) – {($136 000 + $27 000) – ($126 000 + $25 000)}=$47 000
FCF = $82 200 – $15 000 – $47 000
= $20 200
Both the operating cash flow and the free cash flow are positive indicating that Stanley wasable to generate adequate cash flow to cover both
Integrative Case Assignment 1
Rey-Anne Paynter808000390 2/19/2013
a. (1) Stanley’s focus is o n maximizing profits. This is the correct goal because the goal of anyfirm, and therefore its financial manager, should be to maximize its value and by extensionthe wealth of the shareholders.
(2) There is potential for an agency problem if Stanley decides to go ahead and invest in thesoftware developer. This investment will cause a temporary decrease in the earnings per share (EPS) of the firm which will mean fewer earnings at the present time for thestakeholders. This may be a problem if the goal of the shareholders is to gain moneysooner than later. However, it the goal of the shareholders is simply to maximize wealth,there may not be an agency problem since the goal of the financial manager, Stanley, is the same as the shareholders’.
b. Since there is no preferred stock; Earnings available for common stockholders= Net Profit After Taxes
No of shares of common stock outstanding = 50 000
EPS = NPAT/ no. of shares of common stock outstanding
EPS show a steady increase over the past five years indicating that Stanley is achieving hisgoal of maximizing profits.
c. Operating Cash Flow
(OCF) for 2012OCF = {Earnings Before Interest and Taxes×(1– Tax rate)} + Depreciation
OCF = {EBIT × (1– T)} + Depreciation
= {$89 000 × (1 – 0.20)} + $11 000
= $82 200
Free Cash Flow (FCF) for 2012
FCF = OCF1– Net Fixed Assets Investments – Net Current Assets Investment
FCF = OCF – NFAI – NCAI
NFAI = Change in net fixed assets + Depreciation= ($132 000– $128 000) + $11000
= $15 000
NCAI = Chance in current assets – Change in (Accounts Payable + Accruals)
= ($421 000 – $62 000) – {($136 000 + $27 000) – ($126 000 + $25 000)}=$47 000
FCF = $82 200 – $15 000 – $47 000
= $20 200
Both the operating cash flow and the free cash flow are positive indicating that Stanley wasable to generate adequate cash flow to cover both