Question

FREE CASH FLOW Arlington Corporation’s financial statements (dollars and shares are in

millions) are provided here.

Balance Sheets as of December 31

2018                     2017

Assets

Cash and equivalents                      $ 15,000               $ 14,000

Accounts receivable                        35,000                   30,000

Inventories                                         33,320                   27,000

Total current assets                        $ 83,320               $ 71,000

Net plant and equipment             48,000                  46,000

Total assets                                        $131,320             $ 117,000

Liabilities and Equity

Accounts payable                             $ 10,100               $ 9,000

Accruals                                               8,000                     6,000

Notes payable                                   7,000                     5,050

Total current liabilities                   $ 25,100               $ 20,050

Long-term bonds                              20,000                  20,000

Total liabilities                                   $ 45,100               $ 40,050

Common stock (4,000 shares)     40,000                  40,000

Retained earnings                            46,220                   36,950

Common equity                                $ 86,220               $ 76,950

Total liabilities and equity             $131,320             $ 117,000

Income Statement for Year Ending December 31, 2018

Sales $210,000

Operating costs excluding depreciation and amortization 160,000

EBITDA $ 50,000

Depreciation and amortization 6,000

EBIT $ 44,000

Interest 5,350

EBT $ 38,650

Taxes (40%) 15,460

Net income $ 23,190

Dividends paid $ 13,920

a. What was net operating working capital for 2017 and 2018? Assume that all cash is

excess cash; i.e., this cash is not needed for operating purposes.

b. What was Arlington’s 2018 free cash flow?

Answer 1

Solution :-

Note :- As given cash is excees cash i.e cash is not needed for operating purposes it is not included in calculating net operating working capital