Question

Problem 2-12
Free Cash Flows

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

	2016		2015
Sales	$6,500.0		$5,000.0
Operating costs excluding depreciation	5,363.0		4,250.0
Depreciation and amortization	150.0		120.0
Earnings before interest and taxes	$987.0		$630.0
Less Interest	140.0		108.0
Pre-tax income	$847.0		$522.0
Taxes (40%)	338.8		208.8
Net income available to common stockholders	$508.2		$313.2
Common dividends	$457.0		$251.0

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

	2016		2015
Assets
Cash	$77.0		$70.0
Short-term investments	33.0		25.0
Accounts receivable	650.0		500.0
Inventories	1,380.0		1,150.0
Total current assets	$2,140.0		$1,745.0
Net plant and equipment	1,500.0		1,200.0
Total assets	$3,640.0		$2,945.0
Liabilities and Equity
Accounts payable	$455.0		$350.0
Accruals	375.0		300.0
Notes payable	130.0		100.0
Total current liabilities	$960.0		$750.0
Long-term debt	1,300.0		1,000.0
Total liabilities	$2,260.0		$1,750.0
Common stock	1,235.8		1,102.0
Retained earnings	144.2		93.0
Total common equity	$1,380.0		$1,195.0
Total liabilities and equity	$3,640.0		$2,945.0

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

What is the net operating profit after taxes (NOPAT) for 2016? 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

What are the amounts of net operating working capital for both years? 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.
2016 $    million
2015 $    million

What are the amounts of total net operating capital for both years? 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.
2016 $    million
2015 $    million

What is the free cash flow for 2016? 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

What is the ROIC for 2016? Round your answer to two decimal places.
  %

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

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1. NOPAT
Operating Income		$ 987.00
Less: Income Tax	40%	$ 394.80
NOPAT		$ 592.20
2. Net Operating Working Capital
Net Operating Assets:		2016	2015
Cash		$         77	$         70
Accounts Receivable		$       650	$       500
Inventory		$    1,380	$    1,150
Net Operating Assets	A	$    2,107	$    1,720
Net Operaing Liabilities:		2016	2015
Accounts Payable		$       455	$       350
Accruals		$       375	$       300
Net Operating Liabilities	B	$       830	$       650
Net Operating Working Capital	A-B	$    1,277	$    1,070
3. Net Operating Capital:
		2016	2015
Net Operating Working Capital		$    1,277	$    1,070
Add: Non Current Operating Assets
Net Plant and Equipment		$    1,500	$    1,200
Net Operating Capital		$    2,777	$    2,270
4. Free Cash Flow
NOPAT			$ 592.20
Add: Depreciation			$ 150.00
Less: Change in Working Capital			$ -185.00
(2140-1745)-(960-750)
Less: Capital Expenditure			$ -450.00
1500-1200+150
Free Cash Flow			$ 107.20