Quantify the Effects of Managerial Actions on ROPI and Components Rincon Farms Inc. reports the following financial data just prior to its fiscal year ended December 31, 2019 ($ millions). Rincon Farms Inc. Balance Sheet Cash $100 Accounts payable $300 Accounts receivable 300 Long-term debt 600 Inventory 500 Property, plant & equipment 1,000 Equity 1,000 Total assets $1,900 Total liabilities and equity $1,900 Sales NOPAT Actual Forecasted Dec. 2019 Dec. 2020 $1,200 $1,310 $210 $216 $1,500 $1,545 7% NOA WACC a. Compute ROPI for FY2019 and FY2020. Net operating assets (NOA) at June 30, 2019 were $1,350. Round answers to one decimal place, if applicable. 2019 2020 ROPI $ a. Compute ROPI for FY2019 and FY2020. Net operating assets (NOA) at June 30, 2019 were $1,350. Round answers to one decimal place, if applicable. 2019 2020 ROPI $
b. The company is contemplating taking the following actions before the end of 2019. (These actions are not reflected in any of the financial data reported above. For each of the actions, determine the effect on residual operating income for the fiscal year ended December 31, 2020.
1. Reduce inventory by 10% which reduces accounts payable by 5%.
2. Decrease property, plant and equipment (PPE) by 20% with no consequent impact on NOPAT.
3. Engage in a sale leaseback of a major building. The company will sell 50% of its PPE at book value and increase rental costs by $30 after tax, per year. 4. Increase debt $300, which increases interest expense by $15. 3 4
Round answers to one decimal place, if applicable. Actual Forecasted Action June 2019 June 2020 1 2 NOPAT $ $ NOABeg ROPI $ $