Last year Rattner Robotics had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. At year-end, it had $14 million in current assets, $3 million in accounts payable, $1 million in accruals, and $15 million in net plant and equipment. Assume that Rattner’s only noncash item was depreciation. a. What was the company’s net income? b. What was its net working capital (NWC)? c. Rattner had $12 million in net plant and equipment the prior year. Its net working capital has remained constant over time. What is the company’s free cash flow (FCF) for the year that just ended? d. If the firm had $4.5 million in retained earnings at the beginning of the year and paid out total dividends of $1.2 million, what was its retained earnings at the end of the year? Assume that all dividends declared were actually paid.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
4. Last year Rattner Robotics had $5 million in operating income (EBIT). Its
expense was $1 million, its interest expense was $1 million, and its corporate tax rate was
40%. At year-end, it had $14 million in current assets, $3 million in accounts payable, $1
million in accruals, and $15 million in net plant and equipment. Assume that Rattner’s only
noncash item was depreciation. a. What was the company’s net income?
b. What was its net
c. Rattner had $12 million in net plant and equipment the prior year. Its net working
capital has remained constant over time. What is the company’s
the year that just ended?
d. If the firm had $4.5 million in
out total dividends of $1.2 million, what was its retained earnings at the end of the year?
Assume that all dividends declared were actually paid.
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