The following table shows an abbreviated income statement and balance sheet for
ID: 2810916 • Letter: T
Question
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 $3,051.
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.)
INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Net sales $ 27,569 Costs 17,571 Depreciation 1,404 Earnings before interest and taxes (EBIT) $ 8,594 Interest expense 519 Pretax income 8,075 Taxes 2,826 Net income $ 5,249Explanation / Answer
a). Cash flow from operations = net income + interest + depreciation – additions to
net working capital
Free cash flow = cash flow from operations – capital expenditures
Additions to net working capital = (3,405 3,145) (1,377 1,337) (124 119)
(1,091 618) = 260 - 40 - 5 - 473 = -258
Cash flow from operations = 5,249 + 519 + 1,404 - 258 = 6,914
Capital expenditures = $3,051
Free cash flow = $6,914 – 3,051 = $3,863
b). Tax increase due to $519 million more in taxable income $181.65 = (519 × 0.35)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.