Question

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

	2016	2015
Sales	$2,875.0	$2,300.0
Operating costs excluding depreciation and amortization	2,156.0	1,955.0
EBITDA	$719.0	$345.0
Depreciation and amortization	74.0	64.0
Earnings before interest and taxes (EBIT)	$645.0	$281.0
Interest	63.0	51.0
Earnings before taxes (EBT)	$582.0	$230.0
Taxes (40%)	232.8	92.0
Net income	$349.2	$138.0
Common dividends	$314.0	$110.0

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

	2016	2015
Assets
Cash and equivalents	$28.0	$23.0
Accounts receivable	386.0	322.0
Inventories	568.0	437.0
Total current assets	$982.0	$782.0
Net plant and equipment	741.0	644.0
Total assets	$1,723.0	$1,426.0
Liabilities and Equity
Accounts payable	$173.0	$138.0
Accruals	173.0	138.0
Notes payable	58.0	46.0
Total current liabilities	$404.0	$322.0
Long-term bonds	575.0	460.0
Total liabilities	$979.0	$782.0
Common stock	666.8	602.0
Retained earnings	77.2	42.0
Common equity	$744.0	$644.0
Total liabilities and equity	$1,723.0	$1,426.0

Write out your answers completely. For example, 25 million should be entered as 25,000,000.

What was net operating working capital for 2015 and 2016?

2015:  $   

2016:  $   

What was the 2016 free cash flow?

$   

How would you explain the large increase in 2016 dividends?

The large increase in free cash flow from 2015 to 2016 explains the large increase in 2016 dividends.

The large increase in net income from 2015 to 2016 explains the large increase in 2016 dividends.

The large increase in EBIT from 2015 to 2016 explains the large increase in 2016 dividends.

The large increase in sales from 2015 to 2016 explains the large increase in 2016 dividends.

The large increase in retained earnings from 2015 to 2016 explains the large increase in 2016 dividends.

Answer 1

	2015	2016
operating current assets	782	982
operating current liabilities	276	344
net operating working capital	506	638
Free cash flow 2016
net income		349.2
add depreciation and amortization		74
increase in accounts receivables		-64
increase in inventory		-200
increase in accounts payable		35
increase in accruals		35
increase in notes payable		12
cash flow from operating activities		241.2
free cash flow	operating cash flow-capital expenditure	241.2-171	70.2
CAPITAL EXPENDITURE = (year end plant balance+ depreciation)-previous year balance	(741+74)-644	171
The large increase in net income from 2015 to 2016 explains the large increase in 2016 dividends.