You are an industry analyst for the telecom sector. You are analyzing financial reports from two companies: BlastTel Inc. and SaneTel Corp. Corporate tax for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you need for the analysis:. Data Collected
BlastTel Inc. SaneTel corp.
EBIT $260,100 $107,100
Depreciation $91,035 $37,485
Total operating capital $1,101,600 $457,470
Net investment in operating capital $459,000 $198,900
WACC 12.28% 17.35%
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 BlastTel Inc. is , whereas the NOPAT for SaneTel Corp. is
• BlastTel Inc. has a free cash flow of , whereas, Sane Tel Corp. has a free cash flow of
• BlastTel Inc. has a return on invested capital than SaneTel Corp. 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 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.
B. 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.