Last year Rattner Robotics had $5 million of operating income. Its depreciation
ID: 2719532 • Letter: L
Question
Last year Rattner Robotics had $5 million of operating income. Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. At year-end, it had $14 million in current asset, $3 million in accounts payable, $1 million in (expense) accrual’s, $2 million in notes payable, and $15 million in net plant and equipment. Rattner had no other current liabilities. Assume that Rattner's only noncash item was depreciation.
a. What was the company's net income?
b. What was its net operating working capitals (NOWC)?
c. What was its net working capital (NWC)?
d. Rattner had $12 million in net plant and equipment the prior year. Its net operating working capital has remained constant over time. What is the company's free cash flow (FCF) for the year that just ended?
e. Rattner had 500,000 common shares outstanding and the common stock amount on the balance sheet is $5 million. The company has not issued or repurchased common stock during last years. Last year's balance in retained earnings was $12 million and the firm paid out dividends of $1.2 million during the year. Develop Rattner's end-of-year Statement of StockHolders Equity.
Explanation / Answer
a. Net Income = Operating Income - Depreciation - Interest - Taxation 1800000 $ 1.8 million b. Net Operating Working Capital = Cash + Accounts Receivable + Inventories - Accounts Payable - Accrued Expenses Hence, Net Operating Working Capital = 10000000 $ 10 million c. In this case, since a bifurcation of Current Assets is not provided for, hence Net Working Capital will be equal to Net Operating Working Capital = $ 10 million d.Free Cash Flow = EBIT - Changes in Working Capital - Capital Expenditure incurred during the year Since there is no change in working capital, the Free Cash Flow is calclulated as 1000000 $ 1 million e. Rattner's End of Year Statement of Stockholder's Equity $ $ Common Stock 5000000 (500,000 common shares of $ 10 each, issued at par) Retained Earnings Opening Balance 12000000 Earnings for the year 1800000 Dividend Payouts -1200000 12600000 Total Stockholders' Equity 17600000
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