Question

# Problem 6-12 Free Cash Flows Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of...

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

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

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