Textbook Problem

FREE CASH FLOW Financial information for Powell Panther Corporation is shown here.

Powell Panther Corporation income statement for year ending December 31 (Million of Dollars)

	2018	2017
Sales	$ 1,200.0	$ 1000.0
Operating costs excluding depreciation and amortization	$ 1,020.0	850.0
EBITDA	$ 180.0	$150.0
Depreciation and amortization	30.0	25.0
Earnings before interests and taxes (EBIT)	$ 150.0	$ 125.0
interest	21.7	20.2
Earnings before taxes (EBT)	$ 128.3	$ 104.3
Taxes (40%)	51.3	41.9
Net income	$ 77.0	$ 62.9
Common dividends	$ 60.5	$ 46.4

Powell Panther Corporation Balance sheets as of December 31 (Million of Dollars)

	2018	2017
Assets
Cash and equivalents	$ 12.0	$ 10.0
Accounts receivable	180.0	150.0
Inventories	180.0	200.0
Total current assets	$ 372.0	$ 360.0
Net plant and equipment	300.0	250.0
Total assets	$ 672.0	$ 610.0
Liability and Equity
Accounts payable	$ 108.0	$ 90.0
Accrusis	72.0	60.0
Notes payable	67.0	51.5
Term current liabilities	$ 247.0	$201.5
Long term bonds	150.0	1SO.D
Total liabilities	$ 397.0	$ 351.5
Common stock (50 million shares)	50.0	50.0
Retained earnings	225.0	208.5
Common equity	$ 275.0	$ 258.5
Total liabilities and equity	$ 672.0	$ 610.0

1. a. What was net operating working capital for 2017 and 2018? Assume the firm has no excess cash.
2. b. What was the 2018 free cash flow?
3. c. How would you explain the large increase in 2018 dividends?