Question

Last year Charlie Brown had $5 million in operating income (EBIT). It’s depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. At year-end, it had $14 million in current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Charlie had no other current liabilities. Assume the Charlie’s only noncash item was depreciation.

1. What was the company’s net income?
2. What was its net operating working capital (NOWC)
3. What was its net working capital?
4. Charlie had $12 million in net plant and equipment the prior year. Its net operating working capital has remained constant over time. What is the company’s free cash flow (FCF) for the year that just ended?4
5. Charlie had 500,000 common shares outstanding and the common stock amount on the balance sheet is $5 million. The company has not issued or repurchased common stock during the year. Last year’s balance in retained earnings was $11.2 million and the firm paid out dividends of $1.2 million during the year. Develop Charlie’s end-of-year Statement of Stockholders’ Equity.

Answer 1