Question

# Quantitative Problem: Rosnan Industries' 2017 and 2016 balance sheets and income statements are shown below. Balance...

Quantitative Problem: Rosnan Industries' 2017 and 2016 balance sheets and income statements are shown below.

 Balance Sheets: 2017 2016 Cash and equivalents \$100 \$85 Accounts receivable 275 300 Inventories 375 250 Total current assets \$750 \$635 Net plant and equipment 2,300 1,490 Total assets \$3,050 \$2,125 Accounts payable \$150 \$85 Accruals 75 50 Notes payable 150 75 Total current liabilities \$375 \$210 Long-term debt 450 290 Common stock 1,225 1,225 Retained earnings 1,000 400 Total liabilities and equity \$3,050 \$2,125

 Income Statements: 2017 2016 Sales \$2,800 \$1,500 Operating costs excluding depreciation 1,250 1,000 EBITDA \$1,550 \$500 Depreciation and amortization 100 75 EBIT \$1,450 \$425 Interest 62 45 EBT \$1,388 \$380 Taxes (40%) 555 152 Net income \$833 \$228 Dividends paid \$53 \$48 Addition to retained earnings \$600 \$180 Shares outstanding 100 100 Price \$25.00 \$22.50 WACC 10.00%

The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash.

Using the financial statements given above, what is Rosnan's 2017 free cash flow (FCF)? Use a minus sign to indicate a negative FCF.

*Operating cash flow = EBIT+ depreciation - taxes

= 1450 +100-555

= 995

**working capital =current asset -current liabilities

2016:635-210 = 425

2017: 750-375 = 375

addition to working capital : 425-375 50

***Investment made :Net plant and equipment 2017 + depreciation and amortization - Net plant and equipment 2016

2300+100-1490

910

Free cash flow = operating cash flow - Investment - addition to working capital

= 995 - 910-50

= 35