Financial information for Powell Panther oeporation is shown blow Puwull Panther

Question

Financial information for Powell Panther oeporation is shown blow Puwull Panther Corporation: Incom Statemunts for Yuar Ending Dgtambur 31 (Mlions of Dollars) Eanigs before intirust and axs (EBIT 530.0 $2440 Eanigs before lxes (EST) 477.$200 Taxes (40%) Common dividends Powell Panther Corporation: Balance Shauts as of December 31(Maions of Dellars Cash and oquivalints Accounts raceivable 26.0$20.0 Liabilitis and Equity Accounts paryabla 144.0$120.0 426.0340.0 Long-term bonds Total babilts Common ock 906.0 $740.0 5560$500.0 otal lbties and Wrile out your awirs compldy Fo example, 25 mlon should be nbed as 25,000,000. what was t op rating orking capital for 2015 and 20162 2015: 2016: what was thsi 2016free ash ow? . How would you oxplai ti large incase in 2016 dividnds L The lar IL. The lar iin fit income from 2015 to 2016 xplais h arge inase in 2016 dividands in EBIT from 2015 to 2016 explains the large ireis in 2016 dividends i ses from 2015 to 2016 xplais the large in 2016 dividends in retid in free cash Now from 2015 to 2016 xplaisthe lärgei 2016 dividends IIL The lar V. The large incre inre from 2015 to 2016 xpais the large ncrs i2016 dividds The larg i

Explanation / Answer

Part A)

2016 - Net operating working capital = $ 862 Operating current assets (Cash $26 + Account Receivable $286 + Inventories $550) - $426 Operating current liabilities (Account Payable $144+Arruals $234 + Notes payable $48)

2016 - Net operating working capital = $436,000,000

2015 - Net operating working capital = $ 780 Operating current assets (Cash $20 + Account Receivable $260 + Inventories $500) - $340 Operating current liabilities (Account Payable $120+Arruals $180 + Notes payable $40)

2015 - Net operating working capital = $440,000,000

Part B:

Free Cash Flow of 2016 = Net Income $286.2 + Non-Cash Expenses $70 - Changes in the non-cash net working capital - Capital Expense + Net Debt Issued

Changes in the non-cash working capital = (AR2016 $286 - AR2015 $260) + (Inv2016 $550 - Inv2015 $500) - (CL 2016 426 - CL2015 340)

Changes in the non-cash working capital = $26 + $50 - $86 = -$10

Capital Expenditure = Fixed Assets 2016 $700 - Fixed Assets 2015 $560 = $140

Net Debt Issued = Debt2016 $480 - Debt2015 $400 = $80

Free Cash Flow of 2016 = $286.2 + $70 + $10 - $140 + $80 = $306,200,000

Part C:

Since we cannot calculate the free cash flows of 2015 hence option V is eliminated.

Retained earnings are what left after paying dividends so option IV can be eliminated.

Option I is the correct answer since dividends are paid based on the net earnings of the companies which are also the base for calculating free cash flows to equity shareholders.

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