Question

Problem 2-37 Free Cash Flow (LG2-5)

Rebecky’s Flowers 4U, Inc., had free cash flows during 2015 of $50 million, NOPAT of $89 million, and depreciation of $21 million. Using this information, calculate the missing amounts on Rebecky’s balance sheet below. (Enter your answers in millions of dollars.)

REBECKY’S FLOWERS 4U, INC. Balance Sheet as of December 31, 2015 and 2014 (in millions of dollars)
	2015			2014					2015			2014
Assets								Liabilities and Equity
Current assets:								Current liabilities:
Cash and marketable securities	$	34		$	31			Accrued wages and taxes	$	32		$	30
Accounts receivable		92			82			Accounts payable					50
Inventory		145			127			Notes payable		50			50
Total	$	271		$	240			Total	$			$	130
Fixed assets:								Long-term debt:	$			$	361
Gross plant and equipment	$	530		$	480			Stockholders’ equity:
Less: Depreciation		61			40			Preferred stock (4 million shares)	$	4		$	4
								Common stock and paid-in surplus		60			60
Net plant and equipment	$	469		$	440			(30 million shares)
Other long-term assets		80			80			Retained earnings		242			205
Total	$	549		$	520			Total	$	306		$	269
Total assets	$	820		$	760			Total liabilities and equity	$	820		$	760

Answer 1

First of all we will find Rebecky’s Flowers's Operating cash flow

Rebecky’s Flowers's Operating cash flow

Operating cash flow = NOPAT+ Depreciation

=89+21

=$110

Rebecky’s Flowers's free cash flow

FCF = Operating cash flow – Investment in operating capital

                                $50m = $110m – Investment in operating capital

So, Investment in operating capital

= $110m – $50m

= $60m

IOC = ΔGross fixed assets + ΔNet operating working capital

$60m = ($530m – $480m) + ΔNet operating working capital

=> ΔNet operating working capital = $60m – ($530 – $480m)

= $10m

ΔNet operating working capital = $10m = ∆Crurent assents – ∆Crurent labilités

                                                           $10m = ($271m – $240m) – ∆Current liabilities

=> ∆Current liabilities = ($271m – $240m) – $10m = $21m

=> 2015 Current liabilities = $130m + $21m = $151m

and 2015 Current liabilities

= Accrued wages and taxes + Accounts payable + Notes payable

                                   $151m = $32m + Accounts payable + $50m

=> Accounts payable = $151m – $32m – $50m = $69m

=> Long-term debt = $820m– - $151m – $306m = $363m

REBECKY’S FLOWERS 4U, INC.
Balance Sheet as of December 31, 2015 and 2014
(in millions of dollars)
	2015			2014			2015		2014
Assets						Liabilities and Equity
Current assets:						Current liabilities:
Cash and marketable securities	$	34		$	31	Accrued wages and taxes	32		30
Accounts receivable		92			82	Accounts payable	69		50
Inventory		145			127	Notes payable	50		50
Total	$	271		$	240	Total	151		130
Fixed assets:						Long-term debt:	363		361
Gross plant and equipment	$	530		$	480	Stockholders’ equity:
Less: Depreciation		61			40	Preferred stock (4 million shares)	4		4
						Common stock and paid-in surplus	60		60
Net plant and equipment	$	469		$	440	(30 million shares)
Other long-term assets		80			80	Retained earnings	242		205
Total	$	549		$	520	Total	306		269
Total assets	$	820		$	760	Total liabilities and equity	820		760