The following table shows an abbreviated income statement and balance sheet for

Question

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016.

In 2016 Quick Burger had capital expenditures of $3,066.

a. Calculate Quick Burger’s free cash flow in 2016. (Enter your answer in millions.)

b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c. What would the company’s free cash flow have been if it was all-equity financed?

INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Net sales $ 27,584 Costs 17,586 Depreciation 1,419 Earnings before interest and taxes (EBIT) $ 8,579 Interest expense 534 Pretax income 8,045 Taxes 2,816 Net income $ 5,229

Explanation / Answer

a) We need to calculate cash flows from operations first.

Cash Flow from operations = Net income+Interest+Depreciation- Additions to net working capital

Additions to net working capita= ($1392+1391106-3420)-($1352+134+633-$3578)

= (729)-(1459) = $730

=$5229+$534+$1419-$730

=$6452

Free cash Flow = $6452-$3066 (capital expenditure)

= $3386

b)Income Statement

Additional Tax = $30002.65-$2815.75

= $186.9

c) We have already calcullated Additions to working capital = $730

Cash flow from operations here will be = net income + interest (1-tax)+depreciation - Additions to work in capital

=$5229+(534(0.65)+$1419-$730

=$6265.10

Free Cash Flows = $6265.10-$3066

= $3199.10

Net sales $27584 $27584 COGS 17586 17586 Depreciation 1419 1419 EBIT $8579 $8579 Interest Expense 0 534 Pre tax income $8579 $8045 Taxes @ 35% $3002.65 $2815.75 Net Income $5576.35 $5229.25

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