Calculate Computron’s free cash flow. Identify what you think are Computron’s “net Uses” of its FCF. Hint: FCF = NOPAT - Net investment in capital from previous to current year. Computron's Balance Sheets (Millions of Dollars)       2019 2020 Assets     Cash and equivalents $ 60 $ 50 Short-term investments 100 10 Accounts receivable 400 520 Inventories 620 820 Total current assets $ 1,180 $ 1,400 Gross fixed assets $ 3,900 $ 4,820 Less: Accumulated depreciation 1,000 1,320 Net fixed assets $ 2,900 $ 3,500 Total assets $ 4,080 $ 4,900       Liabilities and equity     Accounts payable $ 300 $ 400 Notes payable 50 250 Accruals 200 240 Total current liabilities $ 550 $ 890 Long-term bonds 800 1,100 Total liabilities $ 1,350 $ 1,990 Common stock 1,000 1,000 Retained earnings 1,730 1,910 Total equity $ 2,730 $ 2,910 Total liabilities and equity $ 4,080 $ 4,900             Computron's Income Statement (Millions of Dollars) 2019 2020 Net sales $ 5,500 $ 6,000 Cost of goods sold (Excluding depr. & amort.) 4,300 4,800 Depreciation and amortizationa 290 320 Other operating expenses 350 420 Total operating costs $ 4,940 $ 5,540 Earnings before interest and taxes (EBIT) $ 560 $ 460 Less interest 68 108 Pre-tax earnings $ 492 $ 352 Taxes (25%) 123 88 Net Income $ 369 $ 264       Notes:     a Computron has no amortization charges.           Other Data 2020 2019 Stock price $57.00 $40.00 Shares outstanding (millions) 100 100 Common dividends (millions) $90 $84 Tax rate 25% 25% Weighted average cost of capital (WACC) 10.00% 10.00%             Computron's Statement of Cash Flows (Millions of Dollars)         2020 Operating Activities     Net Income before preferred dividends   $ 264 Noncash adjustments     Depreciation and amortization   320 Due to changes in working capital     Change in accounts receivable   (120) Change in inventories   (200) Change in accounts payable   100 Change in accruals   40 Net cash provided by operating activities   $ 404       Investing activities     Cash used to acquire fixed assets   $ (920) Change in short-term investments   90 Net cash provided by investing activities   $ (830)       Financing Activities     Change in notes payable   $ 200 Change in long-term debt   300 Payment of cash dividends   (84) Net cash provided by financing activities   $ 416       Net change in cash and equivalents   $ (10) Cash and securities at beginning of the year   60 Cash and securities at end of the year   $ 50

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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  • Calculate Computron’s free cash flow. Identify what you think are Computron’s “net Uses” of its FCF.
    • Hint: FCF = NOPAT - Net investment in capital from previous to current year.
  • Computron's Balance Sheets (Millions of Dollars)    
      2019 2020
    Assets    
    Cash and equivalents $ 60 $ 50
    Short-term investments 100 10
    Accounts receivable 400 520
    Inventories 620 820
    Total current assets $ 1,180 $ 1,400
    Gross fixed assets $ 3,900 $ 4,820
    Less: Accumulated depreciation 1,000 1,320
    Net fixed assets $ 2,900 $ 3,500
    Total assets $ 4,080 $ 4,900
         
    Liabilities and equity    
    Accounts payable $ 300 $ 400
    Notes payable 50 250
    Accruals 200 240
    Total current liabilities $ 550 $ 890
    Long-term bonds 800 1,100
    Total liabilities $ 1,350 $ 1,990
    Common stock 1,000 1,000
    Retained earnings 1,730 1,910
    Total equity $ 2,730 $ 2,910
    Total liabilities and equity $ 4,080 $ 4,900
         
         
    Computron's Income Statement (Millions of Dollars) 2019 2020
    Net sales $ 5,500 $ 6,000
    Cost of goods sold (Excluding depr. & amort.) 4,300 4,800
    Depreciation and amortizationa 290 320
    Other operating expenses 350 420
    Total operating costs $ 4,940 $ 5,540
    Earnings before interest and taxes (EBIT) $ 560 $ 460
    Less interest 68 108
    Pre-tax earnings $ 492 $ 352
    Taxes (25%) 123 88
    Net Income $ 369 $ 264
         
    Notes:    
    a Computron has no amortization charges.    
         
    Other Data 2020 2019
    Stock price $57.00 $40.00
    Shares outstanding (millions) 100 100
    Common dividends (millions) $90 $84
    Tax rate 25% 25%
    Weighted average cost of capital (WACC) 10.00% 10.00%
         
         
    Computron's Statement of Cash Flows (Millions of Dollars)
       
        2020
    Operating Activities    
    Net Income before preferred dividends   $ 264
    Noncash adjustments    
    Depreciation and amortization   320
    Due to changes in working capital    
    Change in accounts receivable   (120)
    Change in inventories   (200)
    Change in accounts payable   100
    Change in accruals   40
    Net cash provided by operating activities   $ 404
         
    Investing activities    
    Cash used to acquire fixed assets   $ (920)
    Change in short-term investments   90
    Net cash provided by investing activities   $ (830)
         
    Financing Activities    
    Change in notes payable   $ 200
    Change in long-term debt   300
    Payment of cash dividends   (84)
    Net cash provided by financing activities   $ 416
         
    Net change in cash and equivalents   $ (10)
    Cash and securities at beginning of the year   60
    Cash and securities at end of the year   $ 50
         
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