mework FREE CASH FLOw Financial information for Powell Panther Corporation is sh
ID: 2814847 • Letter: M
Question
mework FREE CASH FLOw Financial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions 2016 2015 Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization Earnings before interest and taxes (EBIT) $2,420.0 $2,200.0 1997.0 1870.0 $423.0 $330.0 80.0 64.0 $343.0 $266.0 53.0 48. $290.0 $218.0 Interest Earnings before taxes (EBT) Taxes (40%) 116.0 Net income S174.0 $130.8 Common dividends $157.0 $105.0 Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2016 2015Explanation / Answer
(a)
For 2015
Operating current assets = Cash + Account receiveables + Inventories
= 26,000,000 + 264,000,000 + 440,000,000
= $730,000,000
Opearting current liabilities = Accounts payables + Accruals
= 198,000,000 + 110,000,000
= $308,000,000
Net operating working capital = Operating Current assets - Operating Current liabilities
= 730,000,000 - 308,000,000
= $422,000,000
For 2016
Operating current assets = Cash + Account receiveables + Inventories
= 33,000,000 + 317,000,000 + 506,000,000
= $856,000,000
Opearting current liabilities = Accounts payables + Accruals
= 248,000,000 + 121,000,000
= $369,000,000
Net operating working capital = Operating Current assets - Operating Current liabilities
= 856,000,000 - 369,000,000
= $487,000,000
(b)
Free cash flow in 2016 = Net income + Depreciaton + Interest expense x (1 - tax rate) - capital expenditures
= 174,000,000 + 80,000,000 + 53,000,000 x (1 - 0.4) - 160,000,000
= 254,000,000 + 31,800,000 - 160,000,000
= $125,800,000
(c)
Large increase in 2016 dividend could be possible only due to large increase in free cash flow from 2015 to 2016. Payment of dividend involves cash outflow. Inspite of large increase in sales, EBIT, net income and retained earnings, a company may find difficulties in payment of dividend if it has no sufficient cash. Hence, it is only due to large increase in free cash flows, Powell Panther Corporation was able to pay large dividends.
Hence correct option is (I)
Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.