Using Rhodes Corporation’s financial statements (shown below), answer the follow
ID: 2722388 • Letter: U
Question
Using Rhodes Corporation’s financial statements (shown below), answer the following questions.
a. What is the net operating profit after taxes (NOPAT) for 2013?
b. What are the amounts of net operating working capital for both years?
c. What are the amounts of total net operating capital for both years?
d. What is the free cash flow for 2013?
e. What is the ROIC for 2013?
f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.)
2013 2012
Sales $11,000 $10,000
Operating costs excluding depreciation 9,360 8,500
Depreciation and amortization 380 360
Earnings before interest and taxes $ 1,260 $ 1,140
Less interest 120 100 Pre-tax income $ 1,140 $ 1,040
Taxes (40%) 456 416
Net income available to common stockholders $ 684 $ 624
Common dividends $ 220 $ 200
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
2013 2012
Assets Cash $ 550 $ 500
Short-term investments 110 100
Accounts receivable 2,750 2,500
Inventories 1,650 1,500
Total current assets $5,060 $4,600
Net plant and equipment 3,850 3,500
Total assets $8,910 $8,100
Liabilities and Equity Accounts payable $1,100 $1,000
Accruals 550 500
Notes payable 384 200
Total current liabilities $2,034 $1,700
Long-term debt 1,100 1,000
Total liabilities $3,134 $2,700
Common stock 4,312 4,400
Retained earnings 1,464 1,000
Total common equity $5,776 $5,400
Total liabilities and equity $8,910 $8,100
I mainly need E and F completed please
Explanation / Answer
a) NOPAT for 2013 = EBIT (1-t) 1260*(1-0.4) = $756 million b) Net operating working capital: Net Operating Working Capital = operating current assets - operating current liabilities which is equal to (Cash + Accounts Receivable + Inventories) (Accounts Payable + Accrued Expenses) operating current assets 4950 4500 operating current liabilities 1650 1500 Net operating working capital 3300 3000 c) Total net operating capital: Total Net Operating Capital = Net Operating Working Capital + Non-current Operating Assets Net operating working capital 3300 3000 Non current operating assets 3850 3500 7150 6500 d) Free cash flow for 2013: NOPAT + depreciation & amortization - capital expenditure - increase in nwc 756 + 380 - 350 - 126 = $660 e) Return on invested capital for 2013: Invested capital = Invested Capital = Total Assets less Cash - Short-Term Investments - Long-Term Investments - Non-Interest Bearing Current Liabilities 8910 - 550 -110 - 1100 - 550 = 6600 for 2013 8100 - 500 -100 - 1000 - 500 = 6000 for 2012 Average invested capital = 6300 ROIC = NOPAT/Average invested capital = 756/6300 = 12% f) Utilisation of FCFF: Interest - after tax 72 Net debt repayments -284 Dividends 220 Net stock repurchases 88 Short term investments purchase 10 106
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