The 2018 income statement for Duffy’s Pest Control shows that depreciation expense was $195 million, EBIT...

The 2018 income statement for Duffy’s Pest Control shows that depreciation expense was $195 million, EBIT was $500 million, and the tax rate was 36 percent. At the beginning of the year, the balance of gross fixed assets was $1,570 million and net operating working capital was $415 million. At the end of the year, gross fixed assets was $1,815 million. Duffy’s free cash flow for the year was $413 million.

Calculate the end-of-year balance for net operating working capital. (Enter your answer in millions of dollars rounded to 1 decimal place.)

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Expert Solution

OCF = EBIT*(1-Tax) + Depreciation

OCF = 500*(1-36%) + 195

= 515

Free cash flow = OCF - Change in fixed assets - change in working capital

Let x = year end working capital

Change in fixed assets = 1815 - 1570 = 245

Change in working capital = (x - 415)

413 = 515 - 245 - (x - 415 )

So x = 272

So end of year net working capital = 272

jeff jeffy answered 1 year ago

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