9. The following table shows an abbreviated income statement and balance sheet f

Question

9. The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016.

In 2016 Quick Burger had capital expenditures of $3,069.

a. Calculate Quick Burger’s free cash flow in 2016. (Enter your answer in millions.)

b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c. What would the company’s free cash flow have been if it was all-equity financed?

10. What would be the marginal and average tax rates for a married couple with taxable income of $89,400? For an unmarried taxpayer with the same income? Use Table 3.7. (Do not round intermediate calculations. Enter the marginal tax rate as a percent rounded to 1 decimal place. Enter the average tax rate as a percent rounded to 1 decimal place.)

a. What would be the marginal tax rate for a married couple with income of $89,400?

b. What would be the average tax rate for a married couple with income of $89,400?

c. What would be the marginal tax rate for an unmarried taxpayer with income of $89,400?

d. What would be the average tax rate for an unmarried taxpayer with income of $89,400?

INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Net sales $ 27,587 Costs 17,589 Depreciation 1,422 Earnings before interest and taxes (EBIT) $ 8,576 Interest expense 537 Pretax income 8,039 Taxes 2,654 Net income $ 5,385 TABLE 3.7 Personal tax rates, 2016 Taxable Income ($) Married Taxpayers Filing Joint Returns Tax Rate (%) 10.0 15.0 25.0 28.0 33.0 35.0 39.6 Single Taxpayers 0-9,275 0-18,550 9,276-37,650 37,651-91,150 91,151-190,150 190,151-413,350 413,351-415,050 415,051 and above 18,551-75,300 75,301-151,900 151,901-231,450 231,451-413,350 413,351-466,950 466,951 and above 4 Losses can be carried back for a maximum of 3 years and forward for up to 15 years

Explanation / Answer

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a) Cash flow from operations = Net income + Interest + Depreciation – Additions to net working capital Free cash flow = Cash flow from operations – Capital expenditures Cash flow from operations = 5385+537+1422-258= 7086 (Addition to NWC = (5002-3423)-(4484-3163) = 258 Free cash flow = Cash flow from operations – Capital expenditures = 7086-3069 = $         4,017 (Answer) b) Additional tax to be paid if, QB was financed entirely by equity. = 3001.6-2654 = $347.6 (Answer) INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Existing All Equity Net sales 27,587 27587 Costs 17,589 17589 Depreciation 1,422 1422 Earnings before interest and taxes (EBIT) 8,576 8576 Interest expense 537 0 Pretax income 8,039 8576 Taxes (2654/8039 = 32.59%) 2,654 3001.6 Net income 5,385 5574.4 NOTE: TAX RATE GIVEN AS 35% FOR EQUITY FINANCING. c) Cash flow from operations = 5574.4+1422-258= $         6,738.4 Free cash flow (100% EQUITY FINANCED) = Cash flow from operations – Capital expenditures = 6738.4-3069 = $         3,668.4 (Answer)

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