Question

1) Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 25%. At year-end, it had $14 million in operating current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Assume Miami Rivet has no excess cash. Miami Rivet uses only debt and common equity to fund its operations. (In other words, Miami Rivet has no preferred stock on its balance sheet.) Miami Rivet had no other current liabilities. Assume that Miami Rivet only noncash item was depreciation. Based on this information answer the following questions:

What was the company’s net income? You should enter the full number i.e. if your calculations result in a net income of 1 million enter 1000000.

2) Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 25%. At year-end, it had $14 million in operating current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Assume Miami Rivet has no excess cash. Miami Rivet uses only debt and common equity to fund its operations. (In other words, Miami Rivet has no preferred stock on its balance sheet.) Miami Rivet had no other current liabilities. Assume that Miami Rivet only noncash item was depreciation. Based on this information answer the following questions:

What was its net operating working capital (NOWC)? You should enter the full number i.e. if your calculations result in a NOWC of 1 million enter 1000000.

3) Miami Rivet had $12 million in net plant and equipment the prior year. Its net operating working capital has remained constant over time. What is the company’s free cash flow (FCF) for the year that just ended? You should enter the full number i.e. if your calculations result in a NOWC of 1 million enter 1000000.Note that capital expenditures are equal to the change in net plant and equipment plus the annual depreciation expense.

4) Miami Rivet has 500,000 common shares outstanding, and the common stock amount on the balance sheet is $5 million. The company has not issued or repurchased common stock during the year. Last year’s balance in retained earnings was $11.2 million, and the firm paid out dividends of $1.8 million during the year. Based on this information Miami Rivet’s end-of-year Retained Earnings are: (You should enter the full number i.e. if your calculations result in Retained Earnings of 1 million enter 1000000.

Answer 1

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