Question

FREE CASH FLOW Arlington Corporation's financial statements (dollars and shares are in millions) are provided here....

FREE CASH FLOW

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here.

Balance Sheets as of December 31
2016 2015
Assets
Cash and equivalents $  14,000 $  11,000
Accounts receivable 25,000 20,000
Inventories 21,520 19,000
  Total current assets $ 60,520 $ 50,000
Net plant and equipment 51,000 49,000
Total assets $111,520 $99,000
Liabilities and Equity
Accounts payable $ 10,600 $  9,500
Accruals 7,000 5,000
Notes payable 6,900 5,300
  Total current liabilities $ 24,500 $ 19,800
Long-term bonds 10,000 10,000
  Total liabilities $ 34,500 $ 29,800
Common stock (4,000 shares) 50,000 50,000
Retained earnings 27,020 19,200
  Common equity $ 77,020 $ 69,200
Total liabilities and equity $111,520 $99,000
Income Statement for Year Ending December 31, 2016
Sales $240,000
Operating costs excluding depreciation and amortization 190,000
EBITDA $ 50,000
Depreciation & amortization 5,000
EBIT $ 45,000
Interest 9,250
EBT $ 35,750
Taxes (40%) 14,300
Net income $ 21,450
Dividends paid 13,630

Enter your answers in millions. For example, an answer of $25,000,000,000 should be entered as 25,000.

  1. What was net operating working capital for 2015 and 2016?
    2015 $    million
    2016 $    million

  2. What was Arlington's 2016 free cash flow?

    $    million
  3. Construct Arlington's 2016 statement of stockholders' equity.
    Common Stock Retained
    Earnings
    Total Stockholders'
    Equity
    Shares Amount
    Balances, 12/31/15   million $    million $    million $    million
    2016 Net Income   million
    Cash Dividends   million
    Addition to retained earnings   million
    Balances, 12/31/16   million $    million $    million $    million
  4. What was Arlington's 2016 EVA? Assume that its after-tax cost of capital is 10%. Round your answer to two decimal places.

    $    million

  5. What was Arlington's MVA at year-end 2016? Assume that its stock price at December 31, 2016 was $25.

    $    million

Homework Answers

Answer #1

a) Net operating Working Capital = Operating Current Asset- Operating Current Liabilities, Hence:

2015 $    30,200 million
2016 $    36,020 million

b) FCFF = (EBITDA*(1-tax rate)) + (Depreciation*tax rate) – Capital Expenditure - Working Capital Investment

= (50,000* (1-.40) + (5000*.40) - 7000 - 2820

=$22,180 million

Calculation of Capital Expenditure

Net plant and equipment as of 2016 51,000
Less: Depreciation for 2016 5,000
Less : Net plant and equipment as of 2015 -49,000
Capital Expenditure 7,000

Calculation of Working Capital Investment

Increase in Accounts receivable 5,000
Increase in Inventories 2,520
Less: Increase in Current Liabilities -4,700
WC Inv 2,820

c)

Common Stock Retained (in millions) Total Stockholders equity (in millions)
Shares (in millions) Amount (in millions
Balances, 12/31/15                          4,000                              50,000           19,200                      69,200
2016 Net Income           21,450
Cash Dividends         -13,630
Addition to retained earnings             7,820
Balances, 12/31/16                              50,000           27,020                      77,020

  

d) EVA = NOPAT - (Total Assets - Current Liabilities)* Cost of capital after tax

= EBIT (1-tax rate) - (Total Assets - Current Liabilities)* Cost of capital after tax

= 45000 (1-.40) - (111520-24500)*.10

=$18,298 million

e) MVA = Market Value - Total Capital invested

= Number of Stock * stock price - (Total Assets - Current Liabilities)

= (4000*25) - (111520-24500)

= 100000 - 87020

= $ 12,980 million

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