FREE CASH FLOW Arlington Corporation\'s finandial statements (dollars and shares
ID: 2810642 • Letter: F
Question
FREE CASH FLOW Arlington Corporation's finandial statements (dollars and shares are in millions) are provided here. Balance Sheets as of December 31 2016 2015 Assets Cash and equivalents Accounts receivable s 15,000 25,000 20,095 60,095 50,000 $110,095 14,000 20,000 6,000 50,000 49,000 599,000 Total current assets Net plant and equipment Total assets Liatities and Equity Accounts payable Accruals Notes payable 10,700 7,700 6,400 s 24,800 10,000 s 34,800 50,000 25,295 75,295 $110,095 9,000 6,000 ,100 20,100 0,000 S 30,100 50,000 18,900 68,900 99,000 Total current Sabilities Long-tem bonds Total liabilities Common stock (4,000 shares) Retained earning Common equity Total iabilities and equity Income Statement for Year Ending December 31, 2016 Sales Operating costs excluding depreciation and amortization EBITDA 5221,000 170,000 51,000 6,000 45,000 ,550 s 39,450 15,780 23,670 7,275 EBIT EBT Taxes (40%) Net income Dividends paid Enter your answers in millions. For eample, an answer of $25,000,000,000 shoukd be entered as 25,000. a. What was net operating working capital for 2015 and 2016? 2015 S 2016 S b. What was Arlingtons 2016 free cash flow? c. Construct Arlington's 2016 statement of stockholders' equity. Common Stock Equity Shares Amount Dalances, 12/31/15 2016 Net tncome Cash Dividends Addition to retained earnings Dalances, 12/31/16 million S million S million S million S d, what was Arlington's 2016 EVA? Assume that its after-tax cost or capital is 10%. Round your answer to two decimal places. e. What was Arlingtons MVA at year-end 2016 Assume that its stock price at December 31, 2016 was $25Explanation / Answer
A ANS)
Net operating working capital is nothing but current assets minus the current liabilities.
2015
Net operating working capital = $ 50,000- $ 20,100 = $29,900
2016
Net operating working capital = $ 60,095 - $ 24,800 = $35,295
B ANS)
Free cash flow = EBIT + Depreciation and amortization – Change in working capital-Capital Expenditure
EBIT= $45,000
Depreciation and amortization = $6,000
Change in working capital (2016 – 2015)= $35,295- $29,900 = $5,395
Capital Expenditure is nothing but expenditure on fixed assets like building, land, plant and equipment. In the present case net plant and equipment increases in the year by $1,000 ($50,000-$49,000). Therefore
Capital Expenditure = $1,000
Free cash flow = 45,000 + 6000 – 5395 – 1000 = $44,605
C ANS)
Assuming all dividends are paid in cash
Particulars
Shares
Amount
Retained Earnings
Total Stockholders equity
Balance 12/31/15
4,000
$50,000
$18,900
$68,900
2016 Net Income
$23,670
Cash Dividends
17,275
Addition to retained earnings($25,295- $18,900)
$ 6395
Balance 12/31/16
4,000
$50,000
$25,295
$75,295
D ANS)
Cost of capital = 10% or 0.1
Capital = Total stock holders’ equity + Long term debt
= $75,295+$10,000 = $ 85,295
2016
Economic Value Added (EVA) = Net income – (Capital *Cost of capital)
=$23,670 – (0.1*$85,295)
= $15,140.5
E ANS)
Market Value Added (MVA) = Market value of stocks – Book value Stock holders’ equity
= (4000 share*$25)- $50,000 = $50,000
Hope this was helpful :)
Particulars
Shares
Amount
Retained Earnings
Total Stockholders equity
Balance 12/31/15
4,000
$50,000
$18,900
$68,900
2016 Net Income
$23,670
Cash Dividends
17,275
Addition to retained earnings($25,295- $18,900)
$ 6395
Balance 12/31/16
4,000
$50,000
$25,295
$75,295
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