FREE CASH FLOW 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 $ 15,000 $ 14,000 Accounts receivable 35,000 30,000 Inventories 33,320 27,000 Total current assets $ 83,320 $ 71,000 Net plant and equipment 48,000 46,000 Total assets $131,320 $117,000 Liabilities and Equity Accounts payable $ 10.100 $ 9,000 Accruals 8,000 6,000 Notes payable 7,000 5,055 Total current liabilities $ 25,100 $ 20,050 Long-term bonds 20,000 20,000 Total liabilities $ 45,100 $ 40,050 Common stock (4,000 shares) 40,000 40,000 Retained earnings 46,220 36,950 Common equity $ 86,220 $ 76,950 Total liabilities and equity $131,320 $117,000 Income Statement for Year Ending December 31, 2016 Sales $210,000 Operating costs excluding depreciotion and amortization 160,000 EBITDA $ 50,000 Depreciation & amortization 6,000 EBIT $ 44,000 Interest 5,350 EBT $ 38,650 Taxes (40%) 15,460 Net income $ 23,190 Dividends paid $ 13,920 a. What was not operating working capital for 2015 and 2016? b. What was Arlington’s 2016 free cash flow? c. Construct Arlington’s 2016 statement of stockholders’ equity. d. What was Arlington’s 2016 EVA? Assume that its after-tax cost of capital is 10%. e. What was Arlington’s MVA at year-end 2016? Assume that its stock price at December 31, 2016, was $25.

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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937
BuyFind

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937

Solutions

Chapter
Section
Chapter 3, Problem 14P
Textbook Problem

FREE CASH FLOW 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 $ 15,000 $ 14,000
Accounts receivable 35,000 30,000
Inventories 33,320 27,000
Total current assets $ 83,320 $ 71,000
Net plant and equipment 48,000 46,000
Total assets $131,320 $117,000
Liabilities and Equity    
Accounts payable $ 10.100 $ 9,000
Accruals 8,000 6,000
Notes payable 7,000 5,055
Total current liabilities $ 25,100 $ 20,050
Long-term bonds 20,000 20,000
Total liabilities $ 45,100 $ 40,050
Common stock (4,000 shares) 40,000 40,000
Retained earnings 46,220 36,950
Common equity $ 86,220 $ 76,950
Total liabilities and equity $131,320 $117,000

Income Statement for Year Ending December 31, 2016

Sales $210,000
Operating costs excluding depreciotion and amortization 160,000
EBITDA $ 50,000
Depreciation & amortization 6,000
EBIT $ 44,000
Interest 5,350
EBT $ 38,650
Taxes (40%) 15,460
Net income $ 23,190
Dividends paid $ 13,920
  1. a. What was not operating working capital for 2015 and 2016?
  2. b. What was Arlington’s 2016 free cash flow?
  3. c. Construct Arlington’s 2016 statement of stockholders’ equity.
  4. d. What was Arlington’s 2016 EVA? Assume that its after-tax cost of capital is 10%.
  5. e. What was Arlington’s MVA at year-end 2016? Assume that its stock price at December 31, 2016, was $25.

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Chapter 3 Solutions

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