Question

Free Cash Flows

Rhodes Corporation’s financial statements are shown below.

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

	2020			2019
Sales	$	11,000		$	10,000
Operating costs excluding depreciation		9,618			8,742
Depreciation and amortization		350			330
Earnings before interest and taxes	$	1,032		$	928
Less interest		240			200
Pre-tax income	$	792		$	728
Taxes (25%)		198			182
Net income available to common stockholders	$	594		$	546
Common dividends	$	205		$	200

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

	2020			2019
Assets
Cash	$	550		$	500
Short-term investments		120			100
Accounts receivable		2,750			2,500
Inventories		1,650			1,600
Total current assets	$	5,070		$	4,700
Net plant and equipment		3,750			3,500
Total assets	$	8,820		$	8,200
Liabilities and Equity
Accounts payable	$	1,100		$	1,000
Accruals		550			500
Notes payable		186			100
Total current liabilities	$	1,836		$	1,600
Long-term debt		1,100			1,000
Total liabilities	$	2,936			2,600
Common stock		4,195			4,300
Retained earnings		1,689			1,300
Total common equity	$	5,884		$	5,600
Total liabilities and equity	$	8,820		$	8,200

Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.

1. What is the net operating profit after taxes (NOPAT) for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

   $   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.

   2020: $   million

   2019: $   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.

   2020: $   million

   2019: $   million

4. What is the free cash flow for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to the nearest whole number.

   $    million

5. What is the ROIC for 2020? 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 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.

   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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