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)
? 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

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)
? 2008 2007
Assets
Cash and equivalents $17.0 $14.0
Accounts receivable 185.0 168.0
Inventories 207.0 180.0
Total current assets $409.0 $362.0
Net plant and equipment 386.0 336.0
Total assets
$795.0

$698.0
Liabilities and Equity
Accounts payable $124.0 $108.0
Notes payable 26.0 24.0
Accruals 47.0 36.0
Total current liabilities $197.0 $168.0
Long-term bonds 264.0 240.0
Total debt $461.0 $408.0
Common stock 303.2 269.0
Retained earnings 30.8 21.0
Common equity
$334.0

$290.0
Total liabilities and equity
$795.0

$698.0

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.)

c. How would you explain the large increase in 2008 dividends?

Explanation / Answer

a) To calculate working capital = current assets - current liabilities (all values in millions) 2008: Total Assets = $795 2008: Total Liabilities = $197 2008 Working Capital = $598 2007: Total Assets = $698 2007: Total Liabilities = $168 2007 Working Capital = $530 b) To calculate Free Cash Flow FCF = Net Income + Depreciation - Cost of Capital Net Income = $97.8 Depreciation = $39 Cost of Capital (Dividends) = $88 FCF = $48.8 c) The increase for dividend pay can be contributed to the larger amount of earnings from the year 2008, along with the fact that the total amount of debt increased, this means the company acquired more capital by issuing more stocks and bonds, therefore with more outstanding debt they have more to pay on their newly found capital.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.