Question

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here.

Balance Sheets as of December 31
	2016		2015
Assets
Cash and equivalents	$  14,000		$  12,000
Accounts receivable	35,000		30,000
Inventories	32,135		29,000
Total current assets	$ 81,135		$ 71,000
Net plant and equipment	53,000		49,000
Total assets	$134,135		$120,000
Liabilities and Equity
Accounts payable	$ 10,200		$  9,500
Accruals	8,000		6,000
Notes payable	6,900		5,300
Total current liabilities	$ 25,100		$ 20,800
Long-term bonds	15,000		15,000
Total liabilities	$ 40,100		$ 35,800
Common stock (4,000 shares)	50,000		50,000
Retained earnings	44,035		34,200
Common equity	$ 94,035		$ 84,200
Total liabilities and equity	$134,135		$120,000

Income Statement for Year Ending December 31, 2016
Sales	$208,000
Operating costs excluding depreciation and amortization	160,000
EBITDA	$ 48,000
Depreciation & amortization	6,000
EBIT	$ 42,000
Interest	6,250
EBT	$ 35,750
Taxes (40%)	14,300
Net income	$ 21,450
Dividends paid	11,615

Enter your answers in millions. For example, an answer of $25,000,000,000 should be entered as 25,000.

What was net operating working capital for 2015 and 2016?

2015	$    million
2016	$    million

What was Arlington's 2016 free cash flow?

$    million

Construct Arlington's 2016 statement of stockholders' equity.

	Common Stock		Retained Earnings	Total Stockholders' Equity
	Shares	Amount
Balances, 12/31/15	million	$    million	$    million	$    million
2016 Net Income			million
Cash Dividends			million
Addition to retained earnings				million
Balances, 12/31/16	million	$    million	$    million	$    million

What was Arlington's 2016 EVA? Assume that its after-tax cost of capital is 10%. Round your answer to two decimal places.

$    million

What was Arlington's MVA at year-end 2016? Assume that its stock price at December 31, 2016 was $25.

Answer 1

Net operating working capital = current assets - current liabilities - Notes Payable

For 2016, Net operating working capital = $81,135 - $(25,100 - 6,900) = $62,935

For 2015, Net operating working capital = $71,000 - $(20,800-5,300) = $55,500

2.

Free cash flow is calculated with the formula:

FCF = (EBIT(1-T) + Depreciation) - (Capital expenditure + change in net operating working capital)

= $(42,000(1-0.40) + 6,000) - $((53,000-49,000) + (62,935 - 55,500)

=$31,200-(4000+7435)

=19,765$

2)market value added (MVA) refers to total value of enquiry and long term debt minus total capital employed by boshareholders and long term debt holder

Here long term bond value is same

Then, MVA =CURRENT market value of equity -share holders fund

=100000(25*4000)-94,035

MVA=$ 5,965

3)

EVA refers to difference between net operating income and return on capital emlopyed

Step:1 net operating income

NET INCOME=$ 21,450

ADD:interest net of tax=$3750

Net operating income=$ 25,200

Step2:capital employed

Share holders fund =$ 94,035

Debt. =$15,000

Total = $1,09,035

Step3:EVA =25,200-10904(109035*10%)

EVA=$14,296