Problem 3-10. Free cash flow Financial information for Powell Panther Corporatio

Question

Problem 3-10. Free cash flow

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

a. What was net working capital for 2007 and 2008? (Enter your answers as whole numbers. For example, an answer of $1 million should be entered as 1,000,000.)
2007:
2008:

b. What was the 2008 free cash flow? (Enter your answers as whole numbers. For example, an answer of $1 million should be entered as 1,000,000.)

2008 2007 Sales $1,320.0 $1,200.0 Operating costs excluding depreciation and amortization 1,089.0 1,020.0 EBITDA $231.0 $180.0 Depreciation and amortization 39.0 34.0 Earnings before interest and taxes $192.0 $146.0   Less: Interest 29.0 26.0 Earnings before taxes $163.0 $120.0   Taxes (40%) 65.2 48.0 Net income $97.8
$72.0
Common dividends $88.0
$58.0

Explanation / Answer

a) working capital = current assets - current liabilities for 2007 = 362-168 =194million = 194000000 for 2008 = 409 - 197 = 212million =212000000 b)free cash flow = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure EBIT = 231 tax rate = 40% depreciation and amortization = 39 change in net working capital = 212 - 194 =18 capital expenditure = 386-336 (change in net plant and expenditure) = 50 so Free cash flow = 231(1-0.4)+39 -18-50 = 109.6 million = 109600000

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