The following table shows an abbreviated income statement and balance sheet for

Question

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016 INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Net sales Costs Depreciation Earnings before interest and taxes (EBIT) Interest expense Pretax income Taxes $ 27,584 17,586 1,419 $ 8,579 534 8,045 2,816 $ 5,229 Net income BALANCE SHEET OF QUICK BURGER CORP, 2016 2016 2,353 (Figures in s millions) 2015 Liabilities and Shareholders' Equity Assets Current assets Cash and marketable securities Receivables Inventories Other current assets Total current assets Fixed assets Property, plant, and equipment Intangible assets (goodwill) Other long-term assets Total assets 2016 2015 Current liabilities 2,353 Debt due for repayment 1,352 Accounts payable 418 3,160 3,578 1,392 3,420 3,420 139 1,106 4,990 134 Total current liabilities 633 4,472 Long-term debt 24,694 22,852 Other long-term liabilities 2,670 Total liabilities 3,0003,116 Total shareholders' equity 13,650 12,151 2,974 18,703 15.361 14,487 33,110 3,074 20,144 2,821 35,505 33,119 Total liabilities and shareholders' equity 35,505 In 2016 Quick Burger had capital expenditures of $3,066 a. Calculate Quick Burger's free cash flow in 2016. (Enter your answer in millions.) Free cash flow million b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%)(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Additional tax million c. What would the company's free cash flow have been if it was all-equity financed? Free cash flow

Explanation / Answer

Ans a) Cash flow from operations = net income + interest + depreciation – additions to net working capital

Free cash flow = cash flow from operations – capital expenditures

Additions to net working capital = (3,420 3,160) (1,392 1,352) (139 134) (1,106 633)

= -258

Cash flow from operations = 5,229 + 534 + 1,419 -258 = 6924

Capital expenditures = $3,066

Free cash flow = $6924 – 3,066 = $3858

ans b) Tax increase due to $534 million more in taxable income $186.90 = (534 × 0.35)

Ans c) Additions to net working capital = (3,420 3,160) (1,392 1,352) (139 134) (1,089 633) = -258

Cash flow from operations = 5,229 + 534 - 187 + 1,419 -258 = 6737

Free cash flow = 6,737 3,066 = 3,671

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