Free Cash Flows Rhodes Corporation: Income Statements for Year Ending December 3
ID: 2740579 • Letter: F
Question
Free Cash Flows
Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)
2016
2015
Sales
$5,000.0
$4,000.0
Operating costs excluding depreciation
3,875.0
3,400.0
Depreciation and amortization
140.0
108.0
Earnings before interest and taxes
$985.0
$492.0
Less: Interest
108.0
86.0
Pre-tax income
$877.0
$406.0
Taxes (40%)
350.8
162.4
Net income available to common stockholders
$526.2
$243.6
Common dividends
$474.0
$195.0
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
2016
2015
Assets
Cash
$78.0
$60.0
Short-term investments
25.0
20.0
Accounts receivable
624.0
480.0
Inventories
1,100.0
880.0
Total current assets
$1,827.0
$1,440.0
Net plant and equipment
1,404.0
1,080.0
Total assets
$3,231.0
$2,520.0
Liabilities and Equity
Accounts payable
$450.0
$360.0
Accruals
336.0
280.0
Notes payable
100.0
80.0
Total current liabilities
$886.0
$720.0
Long-term bonds
1,000.0
800.0
Total liabilities
$1,886.0
$1,520.0
Common stock
1,219.8
927.0
Retained earnings
125.2
73.0
Total common equity
$1,345.0
$1,000.0
Total liabilities and equity
$3,231.0
$2,520.0
Using Rhodes Corporation's financial statements (shown above), answer the following questions.
What is the net operating profit after taxes (NOPAT) for 2016? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
What are the amounts of net operating working capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2016 $ million
2015 $ million
What are the amounts of total net operating capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2016 $ million
2015 $ million
What is the free cash flow for 2016? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
What is the ROIC for 2016? Round your answer to two decimal places.
%
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.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
After-tax interest payment
$ million
Reduction (increase) in debt
$ million
Payment of dividends
$ million
Repurchase (Issue) stock
$ million
Purchase (Sale) of short-term investments
$ million
2016
2015
Sales
$5,000.0
$4,000.0
Operating costs excluding depreciation
3,875.0
3,400.0
Depreciation and amortization
140.0
108.0
Earnings before interest and taxes
$985.0
$492.0
Less: Interest
108.0
86.0
Pre-tax income
$877.0
$406.0
Taxes (40%)
350.8
162.4
Net income available to common stockholders
$526.2
$243.6
Common dividends
$474.0
$195.0
Explanation / Answer
Question 1: NOPAT (Net operating profit after tax ) for 2016
NOPAT = Operating Income *(1-tax rate)
Operating Income = EBIT = 985 Million
Tax rate = 40% = 0.4
NOPAT = 985 *(1-0.4) = $591 Million
Question 2: Operating working capital for 2015 and 2016
Operating working capital = Current assets - Current Liabilties
Current Assets (2015) = 1,440
Current Assets (2016) = 1,827
Current liabilties (2015) =720
Current liabilities (2016) =886
Net operating working capital (2015) = 1,440 = 720 = $720 Million
Net operating working capital (2016) = 1,827 -886 = $941 Million
Question 3: Net Operating Capital for 2015 and 2016
Net operating capital = Net operating working capital + Non-current operating Assets
Non current operating assets = Net plant and equipment for that year
Net operating capital (2015) = 720 + 1080 = 1,800 Million
Net Operating capital (2016) = 941 + 1404 = 2,345 Million
Question 4: Free cash flow in 2016 = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure
EBIT *(1-tax rate) = 985 *(1-0.4) = 591
Depreciation and amortization = 140
Chnage in Net working capital in 2016 from 2015 = 941 - 720 = 221
Capital expenditure in 2016 =1404-1080 = 324
Free cash flow = 591 + 140 - 221 -324 = 186 Million
Question 5: ROIC for 2016
ROIC = (Net Income - Dividends)/ Total Capital = (526.2 -474.)/(1000 + 1219.8 +125.2) = (526.2-474)/2345 = 0.02243 = 2.24%
Question 6:
After tax interest payment = 108*(1-0.4) = 64.8
Reduction (Increase) in debt = (200)
Payment of dividends = 474
Repurchase (Issue) = (292.8)
Purchase (Sale) of short termm investments = 5
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