In 2020, Garage Doors Inc. had sales of $350 million. Operating costs, depreciation and interest were...

In 2020, Garage Doors Inc. had sales of $350 million. Operating costs, depreciation and interest were $230 million, $30 million and $10 million respectively. It’s corporate tax rate is 40%. The company reported $40 million in operating current assets and $14 million in operating current liabilities. It also reported net property, plant and equipment of $70 million and Long Term Debt $180 million.

For 2019, net operating working capital was $28 million, net property, plant and equipment was $60 million and Long Term Debt $200 million.

Net investment in operating capital during 2020 was $8 million.

Required:

With respect to 2020:

(a) What was the company’s net income?

(b) What was the company’s NOPAT?

(c) What was the company’s Free Cash Flows from Operations?

(d) What was the gross investment in property, plant and equipment during the year?

(e) What was the company’s Free Cash Flow to the Firm for the year?

(f) What is the company’s Free Cash Flow to Equity for the year?

Expert Solution

In the books of Garage Doors Inc.
Income Summary Statement for the Year 2020
Particulars	Amount (in millions)	Amount (in millions)
Sales		350
Operating Expenses:
Operating Cost	230
Depereciation	30
Total Operating Expenses		-260
Operating Profit/ Net Income		90
Interest Expenses		-10
Corporate Tax @ 40% [(Operating Profit-Interest Expenses)*40%]		-32
NOPAT		48

In the books of Garage Doors Inc.
Cash Flow Statement of the Year 2020
Particulars	Amount (in millions) (Year 2020)
Free Cash Flows from Operations:
Operating Profit	90
Add: Depreciation	30
Cash flow before adjusting Changes in working Capital	120
Less; Change in Working Capital [(Net Working Capital of 2019) - (Net Working Capital of 2020)]	8
Cash flow after adjusting Changes in working Capital	112
Less: corporate Tax Paid	32
Net Free Cash Flows from Operations	80
Free Cash Flows from Investment
Purchase of Net Property Plant and Equipment (70+30-60)	40
Net Free Cash Flows from Investment	-40
Free Cash Flows from Equity
Payment of Long Term Debt	20
Payment of Interest	10
Net Free Cash Flows from Equity	-30
Net Free Cash Flow to the Firm for the year	10

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