Free Cash Flows

Rhodes Corporation’s financial statements are shown below.

Rhodes Corporation: Income Statements for Year Ending December 31
(Millions of Dollars)

  2020   2019
Sales $ 13,000   $ 11,000
Operating costs excluding depreciation 11,590   9,748
Depreciation and amortization 350   320
    Earnings before interest and taxes $ 1,060   $ 932
Less interest 220   200
    Pre-tax income $ 840   $ 732
Taxes (25%) 210   183
Net income available to common stockholders $ 630   $ 549
Common dividends $ 204   $ 200

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

  2020   2019
Assets
Cash $ 650   $ 600
Short-term investments 220   200
Accounts receivable 2,750   2,500
Inventories 1,450   1,400
    Total current assets $ 5,070   $ 4,700
Net plant and equipment 3,750   3,500
Total assets $ 8,820   $ 8,200
 
Liabilities and Equity
Accounts payable $ 1,300   $ 1,200
Accruals 650   600
Notes payable 184   100
    Total current liabilities $ 2,134   $ 1,900
Long-term debt 1,300   1,200
    Total liabilities $ 3,434   3,100
Common stock 3,960   4,100
Retained earnings 1,426   1,000
    Total common equity $ 5,386   $ 5,100
Total liabilities and equity $ 8,820   $ 8,200

Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.

  1. What is the net operating profit after taxes (NOPAT) for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

$   million

  1. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

2020: $   million

2019: $   million

  1. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

2020: $   million

2019: $   million

  1. What is the free cash flow for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to the nearest whole number.

$    million

  1. What is the ROIC for 2020? Round your answer to two decimal places.

%

  1. 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 answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.
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

 

 

2, Statement of Retained Earnings

In its most recent financial statements, Del-Castillo Inc. reported $35 million of net income and $820 million of retained earnings. The previous retained earnings were $800 million. How much in dividends did the firm pay to shareholders during the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

$

 

 

3, Corporate Tax Liability

The Talley Corporation had taxable operating income of $345,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $70,000, (2) dividends received of $20,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt.

What is the firm’s taxable income? Round your answer to the nearest dollar.

$

What is the tax expense? Round your answers to the nearest dollar.

$

What is the after-tax income? Round your answers to the nearest dollar.

$

 

4,

Corporate Tax Liability

The Wendt Corporation reported $40 million of taxable income. Its federal tax rate was 21% (ignore any possible state corporate taxes).

  1. What is the company’s federal income tax bill for the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

$

  1. Assume the firm receives an additional $2 million of interest income from some bonds it owns. What is the additional tax on this interest income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

$

  1. Now assume that Wendt does not receive the interest income but does receive an additional $2 million as dividends on some stock it owns. Recall that 50% of dividends received are tax exempt. What is the additional tax on this dividend income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

$

 

5,

Free Cash Flows

Rhodes Corporation’s financial statements are shown below.

Rhodes Corporation: Income Statements for Year Ending December 31
(Millions of Dollars)

  2020   2019
Sales $ 13,000   $ 11,000
Operating costs excluding depreciation 11,590   9,748
Depreciation and amortization 350   320
    Earnings before interest and taxes $ 1,060   $ 932
Less interest 220   200
    Pre-tax income $ 840   $ 732
Taxes (25%) 210   183
Net income available to common stockholders $ 630   $ 549
Common dividends $ 204   $ 200

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

  2020   2019
Assets
Cash $ 650   $ 600
Short-term investments 220   200
Accounts receivable 2,750   2,500
Inventories 1,450   1,400
    Total current assets $ 5,070   $ 4,700
Net plant and equipment 3,750   3,500
Total assets $ 8,820   $ 8,200
 
Liabilities and Equity
Accounts payable $ 1,300   $ 1,200
Accruals 650   600
Notes payable 184   100
    Total current liabilities $ 2,134   $ 1,900
Long-term debt 1,300   1,200
    Total liabilities $ 3,434   3,100
Common stock 3,960   4,100
Retained earnings 1,426   1,000
    Total common equity $ 5,386   $ 5,100
Total liabilities and equity $ 8,820   $ 8,200

Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.

  1. What is the net operating profit after taxes (NOPAT) for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

$   million

  1. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

2020: $   million

2019: $   million

  1. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

2020: $   million

2019: $   million

  1. What is the free cash flow for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to the nearest whole number.

$    million

  1. What is the ROIC for 2020? Round your answer to two decimal places.

%

  1. 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 answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.
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