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.
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
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
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
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
What is the ROIC for 2020? 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 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).
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.
$
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.
$
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.
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
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
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
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
What is the ROIC for 2020? 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 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
