The 2018 income statement for Duffy’s Pest Control shows that depreciation expense was $193 million, EBIT...

The 2018 income statement for Duffy’s Pest Control shows that depreciation expense was $193 million, EBIT was $496 million, and the tax rate was 35 percent. At the beginning of the year, the balance of gross fixed assets was $1,566 million and net operating working capital was $413 million. At the end of the year, gross fixed assets was $1,809 million. Duffy’s free cash flow for the year was $409 million.

Calculate the end-of-year balance for net operating working capital

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Expert Solution

Calculate operating cash flow
Operating cash flow	EBIT - Taxes + Depreciation
Operating cash flow	496 - (496*35%) + 193
Operating cash flow	496 - 173.60 + 193
Operating cash flow	$515.40	million

Calculate investment in operating capital
Free cash flow	Operating cash flow - Investment in operating capital
409	515.40 - Investment in operating capital
Investment in operating capital	515.40 - 409
Investment in operating capital	$106.40	million

Calculate ending level of net operating working capital
Investment in operating capital	(1809-1566)+(Ending net operating working capital - 413)
106.4	243 + Ending net operating working capital - 413
106.4-243+413	Ending net operating working capital
Ending net operating working capital	$276.40

Thus, end of year balance for net operating working capital is $276.40 million

jeff jeffy answered 1 year ago

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