Question

eBook Financial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2019 2018 Sales $ 3,500.0 $ 2,800.0 Operating costs excluding depreciation and amortization 2,975.0 2,380.0 EBITDA $ 525.0 $ 420.0 Depreciation and amortization 67.0 56.0 Earnings before interest and taxes (EBIT) $ 458.0 $ 364.0   Interest 77.0 61.6 Earnings before taxes (EBT) $ 381.0 $ 302.4   Taxes (25%) 152.4 121.0 Net income $ 228.6 $ 181.4 Common dividends $ 205.7 $ 145.1 Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2019 2018 Assets Cash and equivalents $ 53.0 $ 42.0 Accounts receivable 451.0 392.0 Inventories 665.0 532.0   Total current assets $ 1,169.0 $ 966.0 Net plant and equipment 672.0 560.0 Total assets $ 1,841.0 $ 1,526.0 Liabilities and Equity Accounts payable $ 235.0 $ 196.0 Accruals 129.0 112.0 Notes payable 70.0 56.0   Total current liabilities $ 434.0 $ 364.0 Long-term bonds 700.0 560.0   Total liabilities $ 1,134.0 $ 924.0 Common stock 629.6 547.5 Retained earnings 77.4 54.5   Common equity $ 707.0 $ 602.0 Total liabilities and equity $ 1,841.0 $ 1,526.0 Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash. 2018:  $   2019:  $   What was the 2019 free cash flow? $   How would you explain the large increase in 2019 dividends? The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends. -Select-IIIIIIIVV

Answer 1

a. 2018 - 658,000,000

2019 - 805,000,000

NOWC = Current assets - ( Current liabilities - Notes payable)

	2019	2018
Total current assets	1,169,000,000	966,000,000
Less: Current assets
Accounts Payable	235,000,000	196,000,000
Accruals	129,000,000	112,000,000
Net operating working capital	805,000,000	658,000,000

b. Free cash flow = EBIT (1- Tax) + Depreciation - (Capital expenditures + Change in Net operating working capital)

Capital expenditure =  Net plant and equipment 2019 - Net plant and equipment in 2018 + Depreciation

= 672-560+ 67 = 179 million

Change in net operating working capital = 805 - 658 = 147

FCF = 458 *( 1-25%) + 67 - ( 179 +147)

=   84,500,000

c. Option I,The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.