Question

ree 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		9,510			8,700
Depreciation and amortization		410			360
Earnings before interest and taxes	$	1,080		$	940
Less interest		120			100
Pre-tax income	$	960		$	840
Taxes (25%)		240			210
Net income available to common stockholders	$	720		$	630
Common dividends	$	205		$	200

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

	2020			2019
Assets
Cash	$	450		$	400
Short-term investments		220			200
Accounts receivable		2,750			2,500
Inventories		2,050			1,800
Total current assets	$	5,470		$	4,900
Net plant and equipment		3,650			3,500
Total assets	$	9,120		$	8,400
Liabilities and Equity
Accounts payable	$	900		$	800
Accruals		450			400
Notes payable		384			200
Total current liabilities	$	1,734		$	1,400
Long-term debt		900			800
Total liabilities	$	2,634			2,200
Common stock		4,671			4,900
Retained earnings		1,815			1,300
Total common equity	$	6,486		$	6,200
Total liabilities and equity	$	9,120		$	8,400

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

1. 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

2. 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

3. What is the ROIC for 2020? Round your answer to two decimal places.

     %

4. 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