Question

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2019. INCOME STATEMENT OF QUICK BURGER CORP., 2019 (Figures in $ millions) Net sales $ 27,577 Costs 17,579 Depreciation 1,412 Earnings before interest and taxes (EBIT) $ 8,586 Interest expense 527 Pretax income 8,059 Federal taxes (@ 21%) 1,692 Net income $ 6,367 BALANCE SHEET OF QUICK BURGER CORP., 2019 (Figures in $ millions) Assets 2019 2018 Liabilities and Shareholders' Equity 2019 2018 Current assets Current liabilities Cash and marketable securities $ 2,346 $ 2,346 Debt due for repayment — $ 397 Receivables 1,385 1,345 Accounts payable $ 3,413 3,153 Inventories 132 127 Total current liabilities $ 3,413 $ 3,550 Other current assets 1,099 626 Total current assets $ 4,962 $ 4,444 Fixed assets Long-term debt $ 13,643 $ 12,144 Property, plant, and equipment $ 24,687 $ 22,845 Other long-term liabilities 3,067 2,967 Intangible assets (goodwill) 2,814 2,663 Total liabilities $ 20,123 $ 18,661 Other long-term assets 2,993 3,109 Total shareholders’ equity 15,333 14,400 Total assets $ 35,456 $ 33,061 Total liabilities and shareholders’ equity $ 35,456 $ 33,061 In 2019 Quick Burger had capital expenditures of $3,059. a. Calculate Quick Burger’s free cash flow in 2019. (Enter your answer in millions.) b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 21%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What would the company’s free cash flow have been if it was all-equity financed? (Enter your answer in millions.)

Answer 1

Sollution 1
Quick Burger Corporation
Statement of free cash flow in 2019                          (Figures in millions)
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income		$6,367.00
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation	$1,412.00
Interest	$527.00
Increase in Accounts Receivables($1385-$1345)	-$40.00
Increase in Inventory($132-$127)	-$5.00
Increase In Accounts Payable ($3413-$3153)	$260.00
Increase in other current assets ($1099-$626)	-$473.00	$1,681.00
Net Cash Flow From Operating Activities (A)		$8,048.00
Capital Expenditures (B)		$3,059.00
Free cash flow in 2019(A-B)		$4,989.00
Sollution 2
If financed by equity, the tax increase would be $527* 21% = $110.67
Sollution 3
Quick Burger Corporation
Statement of free cash flow in 2019                          (Figures in millions)
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income($6367+$527-$110.67)		$6,783.33
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation	$1,412.00
Increase in Accounts Receivables($1385-$1345)	-$40.00
Increase in Inventory($132-$127)	-$5.00
Increase In Accounts Payable ($3413-$3153)	$260.00
Increase in other current assets ($1099-$626)	-$473.00	$1,154.00
Net Cash Flow From Operating Activities (A)		$7,937.33
Capital Expenditures (B)		$3,059.00
Free cash flow in 2019(A-B)		$4,878.33