Question

Problem 6-12
Free Cash Flows

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

	2015		2014
Sales	$2,300.0		$2,000.0
Operating costs excluding depreciation	1,840.0		1,700.0
Depreciation and amortization	70.0		54.0
Earnings before interest and taxes	$390.0		$246.0
Less: Interest	49.0		43.0
Pre-tax income	$341.0		$203.0
Taxes (40%)	136.4		81.2
Net income available to common stockholders	$204.6		$121.8
Common dividends	$184.0		$97.0

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

	2015		2014
Assets
Cash	$35.0		$28.0
Short-term investments	12.0		10.0
Accounts receivable	308.0		280.0
Inventories	462.0		420.0
Total current assets	$817.0		$738.0
Net plant and equipment	702.0		540.0
Total assets	$1,519.0		$1,278.0
Liabilities and Equity
Accounts payable	$182.0		$140.0
Accruals	100.0		80.0
Notes payable	46.0		40.0
Total current liabilities	$328.0		$260.0
Long-term bonds	460.0		400.0
Total liabilities	$788.0		$660.0
Common stock	673.4		581.0
Retained earnings	57.6		37.0
Total common equity	$731.0		$618.0
Total liabilities and equity	$1,519.0		$1,278.0

Using Rhodes Corporation's financial statements (shown above), answer the following questions.

What is the net operating profit after taxes (NOPAT) for 2015? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$   million

What are the amounts of net operating working capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2015 $   million
2014 $   million

What are the amounts of total net operating capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2015 $   million
2014 $   million

What is the free cash flow for 2015? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$   million

What is the ROIC for 2015? 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 answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.

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

Answer 1

1) NOPAT- Net operating profit after tax but before interest

So sales- operating expenses- depreciation-(1-tax)

= As Earnings before interest and tax is given

So we will deduct tax percentage from it

=$ 390(1-.40)

= $234

This is because interest is financing expense while tax is operating.

2) Net operating working capital is working capital excluding investments

= Current assets- short term investments- current liabilities

2015= $817-12-328

=$477

2014= $738-10-260

= $468

3) Total net operating capital

Current assets- short term investment- current liabilities

2015=$1519- 12- 328

=$1179

2014=$ 1278-10-260

=$1008

4) Free cash flow

Net income+ depreciation+ non cash income- net working capital

=$204.6- 817+328

=$ -284.4