Question

# The 2015 income statement for Duffy’s Pest Control shows that depreciation expense was \$207 million, EBIT...

 The 2015 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. (Enter your answer in millions of dollars rounded to 1 decimal place.)

 Net operating working capital \$  m

End-of-year balance for net operating working capital = \$280.60 Million

Workings

Operating cash flow

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

= [ \$524 Million (1 – 0.35) + \$207 Million ]

= \$ 547.60 Million

Free Cash Flow

Free Cash Flow = Operating cash flow – Investment in operating capital

\$437 Million = \$547.60 Million - Investment in operating capital

Investment in operating capital = \$547.60 Million - \$437 Million

= \$110.60 Million

Investment in operating capital

Investment in operating capital = Changes in Gross fixed assets + Changes in Net operating working capital

\$110.60 Million = (\$1,851 Million – 1,594 Million) + (Ending net operating working capital – \$427 Million)

\$110.60 Million = \$257 Million + Ending net operating working capital – \$427 Million

Ending net operating working capital = \$110.60 – 257 + 427 = \$280.60 Million

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