Question

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

	2016		2015
Sales	$2,875.0		$2,500.0
Operating costs excluding depreciation	2,228.0		2,125.0
Depreciation and amortization	65.0		50.0
Earnings before interest and taxes	$582.0		$325.0
Less Interest	62.0		54.0
Pre-tax income	$520.0		$271.0
Taxes (40%)	208.0		108.4
Net income available to common stockholders	$312.0		$162.6
Common dividends	$281.0		$130.0

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

	2016		2015
Assets
Cash	$44.0		$38.0
Short-term investments	15.0		13.0
Accounts receivable	390.0		300.0
Inventories	690.0		600.0
Total current assets	$1,139.0		$951.0
Net plant and equipment	650.0		500.0
Total assets	$1,789.0		$1,451.0
Liabilities and Equity
Accounts payable	$228.0		$175.0
Accruals	173.0		150.0
Notes payable	58.0		50.0
Total current liabilities	$459.0		$375.0
Long-term debt	575.0		500.0
Total liabilities	$1,034.0		$875.0
Common stock	675.0		527.0
Retained earnings	80.0		49.0
Total common equity	$755.0		$576.0
Total liabilities and equity	$1,789.0		$1,451.0

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

1. 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
   
2. 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
   
3. 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
   
4. 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
   
5. What is the ROIC for 2016? 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 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

Solution 1:

NOPAT = EBIT (1 - tax rate)

NOPAT = $582 (1 - 0.40)

NOPAT = $349.2

Hence, the NOPAT for 2016 is $349.2

Solution 2:

2015

First, we compute operating current assets

Operating current assets = Cash + Accounts Receivable + Inventories

Operating current assets = $38 + $300 + $600

Operating current assets = $938

Now, compute operating current liabilities

Operating current liabilities = Accounts payable + Accruals

Operating current liabilities = $175 + $150

Operating current liabilities = $325

Therefore, net operating working capital for 2015 is

Net operating working capital = Operating current assets - Operating current liabilities

Net operating working capital = $938 - $325

Net operating working capital = $613

2016

First, we compute operating current assets

Operating current assets = Cash + Accounts Receivable + Inventories

Operating current assets = $44 + $390 + $690

Operating current assets = $1124

Now, compute operating current liabilities

Operating current liabilities = Accounts payable + Accruals

Operating current liabilities = $228 + $173

Operating current liabilities = $401

Therefore, net operating working capital for 2015 is

Net operating working capital = Operating current assets - Operating current liabilities

Net operating working capital = $1124 - $401

Net operating working capital = $723

Solution 3:

2015

Total net operating capital = NOWC + operating long term assets

Total net operating capital = $613 + $500

Total net operating capital = $1113

2016

Total net operating capital = NOWC + operating long term assets

Total net operating capital = $723 + $650

Total net operating capital = $1373

Solution 4:

2016

Free cash flow = NOPAT - Net Investment in Operating capital

Free cash flow = $349.2 - ($1373 - $1113)

Free cash flow = $89.2