Question

In: Finance

4.) eBook Financial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements...

4.) eBook

Financial information for Powell Panther Corporation is shown below:

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

2019 2018
Sales $ 3,640.0 $ 2,800.0
Operating costs excluding depreciation and amortization 3,094.0 2,380.0
EBITDA $ 546.0 $ 420.0
Depreciation and amortization 81.0 64.0
Earnings before interest and taxes (EBIT) $ 465.0 $ 356.0
  Interest 80.1 61.6
Earnings before taxes (EBT) $ 384.9 $ 294.4
  Taxes (25%) 154.0 117.8
Net income $ 230.9 $ 176.6
Common dividends $ 207.8 $ 141.3

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

2019 2018
Assets
Cash and equivalents $ 40.0 $ 36.0
Accounts receivable 490.0 392.0
Inventories 665.0 532.0
  Total current assets $ 1,195.0 $ 960.0
Net plant and equipment 805.0 644.0
Total assets $ 2,000.0 $ 1,604.0
Liabilities and Equity
Accounts payable $ 202.0 $ 168.0
Accruals 129.0 112.0
Notes payable 72.8 56.0
  Total current liabilities $ 403.8 $ 336.0
Long-term bonds 728.0 560.0
  Total liabilities $ 1,131.8 $ 896.0
Common stock 792.1 655.0
Retained earnings 76.1 53.0
  Common equity $ 868.2 $ 708.0
Total liabilities and equity $ 2,000.0 $ 1,604.0

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

  1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

    2018:  $  

    2019:  $  

  2. What was the 2019 free cash flow?

    $  

  3. How would you explain the large increase in 2019 dividends?

    1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
    2. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.
    3. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
    4. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
    5. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.

    -Select one - I II III IV V

Solutions

Expert Solution

A)To calculate the net operating working capital: there are two formulas which can be used:

  1. Net operating working capital= Current operating assets-Current operating liabilities
  2. Net Operating working capital = (Cash+Accounts receivables+inventories)-(Accounts payable+Accrued expenses)

To calculate the Net operating working capital for

1. 2018= Current operating assets-Current operating liabilities

=960000000-336000000=$624000000

2. 2019= Current operating assets-Current operating liabilities

NOWC=1195000000-403800000=$791200000

B)To calculate free cash flow for 2019:

EBIT*(1-Taxrate)+Non cash expenses-change in(Current assets-current liabilities)-Capital expenditure(difference of plant and machinery from current year to previous year)

=465000000(1-0.25)+81-(1195000000-403800000)-(805000000-644000000)

=-603449919

C) IV. large increase in sales from 2018 to 2019 will explain the large increase in the dividends in 2019. As there was an increase of 30% increase in sales Year on year, the entire capital structure.


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