Homework SourseThe following table shows an abbreviated income statement an
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 $3,066.
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.)
c. What would the company’s free cash flow have been if it was all-equity financed?
| INCOME STATEMENT OF QUICK BURGER CORP., 2016 | |||
| (Figures in $ millions) | |||
| Net sales | $ | 27,584 | |
| Costs | 17,586 | ||
| Depreciation | 1,419 | ||
| Earnings before interest and taxes (EBIT) | $ | 8,579 | |
| Interest expense | 534 | ||
| Pretax income | 8,045 | ||
| Taxes | 2,816 | ||
| Net income | $ | 5,229 | |
Solution
a) We need to calculate cash flows from operations first.
Cash Flow from operations = Net income+Interest+Depreciation- Additions to net working capital
Additions to net working capita= ($1392+1391106-3420)-($1352+134+633-$3578)
= (729)-(1459) = $730
=$5229+$534+$1419-$730
=$6452
Free cash Flow = $6452-$3066 (capital expenditure)
= $3386
b)Income Statement
Additional Tax = $30002.65-$2815.75
= $186.9
c) We have already calcullated Additions to working capital = $730
Cash flow from operations here will be = net income + interest (1-tax)+depreciation - Additions to work in capital
=$5229+(534(0.65)+$1419-$730
=$6265.10
Free Cash Flows = $6265.10-$3066
= $3199.10
| Net sales | $27584 | $27584 |
| COGS | 17586 | 17586 |
| Depreciation | 1419 | 1419 |
| EBIT | $8579 | $8579 |
| Interest Expense | 0 | 534 |
| Pre tax income | $8579 | $8045 |
| Taxes @ 35% | $3002.65 | $2815.75 |
| Net Income | $5576.35 | $5229.25 |
