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The 2021 income statement for Duffy’s Pest Control shows that depreciation expense was $207 million, EBIT...

The 2021 income statement for Duffy’s Pest Control shows that depreciation expense was $207 million, EBIT was $524 million, and the tax rate was 35 percent. At the beginning of the year, the balance of gross fixed assets was $1,594 million and net operating working capital was $427 million. At the end of the year, gross fixed assets was $1,851 million. Duffy’s free cash flow for the year was $437 million.

Calculate the end-of-year balance for net operating working capital.

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Answer #1

Operating cash flow = EBIT(1 - Tax rate) + Depreciation

Operating cash flow = $524 million(1 – 0.35) + $207 million

Operating cash flow = $547.6 million

Investment in operating capital = Operating cash flow - Free cash flow

Investment in operating capital = $547.6 million - $437 million

Investment in operating capital = $110.6 million

Investment in operating capital = ΔGross fixed assets + ΔNet operating working capital

$110.6 million = ($1,851 million - $1,594 million) + (Ending net operating working capital – $427 million)

Ending net operating working capital = $110.6 million - ($1,851 million - $1,594 million) + $427 million

Ending net operating working capital = $280.6 million

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