Question

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

	2018		2017
Sales	$8,400.0		$7,000.0
Operating costs excluding depreciation	6,510.0		5,950.0
Depreciation and amortization	228.0		182.0
Earnings before interest and taxes	$1,662.0		$868.0
Less Interest	181.0		151.0
Pre-tax income	$1,481.0		$717.0
Taxes (40%)	592.4		286.8
Net income available to common stockholders	$888.6		$430.2
Common dividends	$800.0		$344.0

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

	2018		2017
Assets
Cash	$101.0		$84.0
Short-term investments	42.0		35.0
Accounts receivable	1,274.0		980.0
Inventories	1,771.0		1,540.0
Total current assets	$3,188.0		$2,639.0
Net plant and equipment	2,275.0		1,820.0
Total assets	$5,463.0		$4,459.0
Liabilities and Equity
Accounts payable	$788.0		$630.0
Accruals	385.0		350.0
Notes payable	168.0		140.0
Total current liabilities	$1,341.0		$1,120.0
Long-term debt	1,680.0		1,400.0
Total liabilities	$3,021.0		$2,520.0
Common stock	2,224.4		1,810.0
Retained earnings	217.6		129.0
Total common equity	$2,442.0		$1,939.0
Total liabilities and equity	$5,463.0		$4,459.0

Using Rhodes Corporation's financial statements (shown above), answer the following questions.

1. What is the net operating profit after taxes (NOPAT) for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
   $   million
   
2. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.
   2018: $   million
   2017: $   million
   
3. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.
   2018: $   million
   2017: $   million
   
4. What is the free cash flow for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to one decimal place.
   $    million
   
5. What is the ROIC for 2018? Round your answer to two decimal places.
     %
   
6. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.

   After-tax interest payment	$    million
   Reduction (increase) in debt	$    million
   Payment of dividends	$   million
   Repurchase (Issue) stock	$   million
   Purchase (Sale) of short-term investments	$   million

Answer 1

	INCOME STATEMENTS
		2018	2017
	Sales	$         8,400.0	$        7,000.0
	Operating costs excluding depreciation	$         6,510.0	$        5,950.0
	Depreciation and amortization	$            228.0	$           182.0
	Earnings before interest and taxes	$         1,662.0	$           868.0
	Less Interest	$            181.0	$           151.0
	Pre-tax income	$         1,481.0	$           717.0
	Taxes (40%)	$            592.4	$           286.8
	Net income available to common stockholders	$            888.6	$           430.2
	Common dividends	$            800.0	$           344.0
	BALANCE SHEETS
	Assets
	Cash	$            101.0	$              84.0
	Short-term investments	$              42.0	$              35.0
	Accounts receivable	$         1,274.0	$           980.0
	Inventories	$         1,771.0	$        1,540.0
	Total current assets	$         3,188.0	$        2,639.0
	Net plant and equipment	$         2,275.0	$        1,820.0
	Total assets	$         5,463.0	$        4,459.0
	Liabilities and Equity
	Accounts payable	$            788.0	$           630.0
	Accruals	$            385.0	$           350.0
	Notes payable	$            168.0	$           140.0
	Total current liabilities	$         1,341.0	$        1,120.0
	Long-term debt	$         1,680.0	$        1,400.0
	Total liabilities	$         3,021.0	$        2,520.0
	Common stock	$         2,224.4	$        1,810.0
	Retained earnings	$            217.6	$           129.0
	Total common equity	$         2,442.0	$        1,939.0
	Total liabilities and equity	$         5,463.0	$        4,459.0
a]	NOPAT = EBIT*(1-t) = 1662*(1-40%) =	$                     997.2
b]	NOWC = (Cash+AR+Inventories)-(AP+Accruals)	$                 1,973.0	$                1,624.0
c]	TNOC = Net fixed assets+NOWC =	$                 4,248.0	$                3,444.0
d]	FCF = NOPAT-Change in TNOC = 997.2-(4248.0-3444.0) =	$                     193.2
e]	USE OF FCF OF 2018:
	After-tax interest payment [181*60%)	$            108.6
	Reduction (increase) in debt [(168+1680)-(140+1400)] =	$           (308.0)
	Payment of dividends	$            800.0
	Repurchase (Issue) stock (2224.4-1810.0)	$           (414.4)
	Purchase (Sale) of short-term investments (42-35)	$                 7.0
	Total	$                     193.2