Question

Free Cash Flows

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

	2016		2015
Sales	$6,325.0		$5,500.0
Operating costs excluding depreciation	5,218.0		4,675.0
Depreciation and amortization	176.0		160.0
Earnings before interest and taxes	$931.0		$665.0
Less Interest	136.0		118.0
Pre-tax income	$795.0		$547.0
Taxes (40%)	318.0		218.8
Net income available to common stockholders	$477.0		$328.2
Common dividends	$429.0		$263.0

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

	2016		2015
Assets
Cash	$79.0		$61.0
Short-term investments	32.0		28.0
Accounts receivable	715.0		550.0
Inventories	1,029.0		935.0
Total current assets	$1,855.0		$1,574.0
Net plant and equipment	1,755.0		1,595.0
Total assets	$3,610.0		$3,169.0
Liabilities and Equity
Accounts payable	$380.0		$330.0
Accruals	429.0		330.0
Notes payable	127.0		110.0
Total current liabilities	$936.0		$770.0
Long-term debt	1,265.0		1,100.0
Total liabilities	$2,201.0		$1,870.0
Common stock	1,263.0		1,201.0
Retained earnings	146.0		98.0
Total common equity	$1,409.0		$1,299.0
Total liabilities and equity	$3,610.0		$3,169.0

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

	2016	2015
Sales	$   6,325.0	$   5,500.0
Operating costs excluding depreciation	$   5,218.0	$   4,675.0
Depreciation and amortization	$      176.0	$     160.0
Earnings before interest and taxes	$      931.0	$     665.0
Less Interest	$      136.0	$     118.0
Pre-tax income	$      795.0	$     547.0
Taxes (40%)	$      318.0	$     218.8
Net income available to common stockholders	$      477.0	$     328.2
Common dividends	$      429.0	$     263.0
	2016	2015
Assets
Cash	$        79.0	$       61.0
Short-term investments	$        32.0	$       28.0
Accounts receivable	$      715.0	$     550.0
Inventories	$   1,029.0	$     935.0
Total current assets	$   1,855.0	$   1,574.0
Net plant and equipment	$   1,755.0	$   1,595.0
Total assets	$   3,610.0	$   3,169.0
Liabilities and Equity
Accounts payable	$    380.00	$    330.00
Accruals	$    429.00	$    330.00
Notes payable	$    127.00	$    110.00
Total current liabilities	$    936.00	$    770.00
Long-term debt	$ 1,265.00	$ 1,100.00
Total liabilities	$ 2,201.00	$ 1,870.00
Common stock	$ 1,263.00	$ 1,201.00
Retained earnings	$    146.00	$     98.00
Total common equity	$ 1,409.00	$ 1,299.00
Total liabilities and equity	$ 3,610.00	$ 3,169.00
NOPAT for 2016 = EBIT*(1-t) = 931.0*(1-0.4) =	$         558.6
Operating current assets (Cash+Accounts receivable+Inventories)	$     1,823.0	$    1,546.0
Operating current liabilities (Accounts payable+Accruals)	$         809.0	$        660.0
NOWC = Operating current assets-Operating current liabilities	$     1,014.0	$        886.0
Total net operating capital = NOWC + Operating long term assets	$     2,769.0	$    2,481.0
FCF = NOPAT - Net investment in operating capital = 558.6-(2769.0-2481.0) =	$         270.6
ROIC for 2016 = NOPAT/Total net operating capital = 558.6/2769 =	20.2%
Utilisation of FCF:
After tax interest payment = 136*(1-0.4) =	$           81.6
Reduction (increase in debt) =(1265+127)-(1100+110) =	$       -182.0
Payment of dividends	$         429.0
Repurchase (Issue of stock)	$         -62.0
Purchase (sale of short term investment)	$             4.0
Total utilization	$         270.6