Question

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here.

Balance Sheets as of December 31
	2019		2018
Assets
Cash and equivalents	$  15,000		$  14,000
Accounts receivable	30,000		25,000
Inventories	27,640		22,000
Total current assets	$ 72,640		$ 61,000
Net plant and equipment	47,000		46,000
Total assets	$119,640		$107,000
Liabilities and Equity
Accounts payable	$ 10,200		$  8,500
Accruals	7,100		6,000
Notes payable	6,100		5,300
Total current liabilities	$ 23,400		$ 19,800
Long-term bonds	20,000		20,000
Total liabilities	$ 43,400		$ 39,800
Common stock (4,000 shares)	60,000		60,000
Retained earnings	16,240		7,200
Common equity	$ 76,240		$ 67,200
Total liabilities and equity	$119,640		$107,000

Income Statement for Year Ending December 31, 2019
Sales	$210,000
Operating costs excluding depreciation and amortization	160,000
EBITDA	$ 50,000
Depreciation & amortization	8,000
EBIT	$ 42,000
Interest	4,000
EBT	$ 38,000
Taxes (25%)	9,500.00
Net income	$ 28,500.00
Dividends paid	19,460.00

Enter your answers in millions. For example, an answer of $25,000,000,000 should be entered as 25,000. Round your answers to the nearest whole number, if necessary.

1. What was net operating working capital for 2018 and 2019? Assume that all cash is excess cash; i.e., this cash is not needed for operating purposes.

   2018	$    million
   2019	$    million

2. What was Arlington's 2019 free cash flow?

   $    million

3. Construct Arlington's 2019 statement of stockholders' equity.

   Statement of Stockholders' Equity, 2019
   	Common Stock		Retained Earnings	Total Stockholders' Equity
   	Shares	Amount
   Balances, 12/31/18	million	$    million	$    million	$    million
   2019 Net Income			million
   Cash Dividends			million
   Addition to retained earnings				million
   Balances, 12/31/19	million	$    million	$    million	$    million

4. What was Arlington's 2019 EVA? Assume that its after-tax cost of capital is 10%. Round your answer to the nearest cent.

   $    million

5. What was Arlington's MVA at year-end 2019? Assume that its stock price at December 31, 2019 was $25. Round your answer to the nearest cent.

   $    million

Answer 1

a.

	2019	2018
Total current assets	72,640	61,000
Total current liabilities	23,400	19,800
Working capital	49,240	41,200
Less: cash	15,000	14,000
Net operating working capital	34,240	27,200

b. Free cash flow = Net operating profit after taxes (NOPAT) - Net investment in operating capital

= Net income (excluding depreciation & interest) - Net investment in operating capital

= 28,500+ 8,000+4,000 = 40,500 - 7,040 = 33,460

c.  Arlington's 2019 statement of stockholders' equity.

Statement of Stockholders' Equity, 2019
	Common Stock		Retained	Total Stockholders'
	Shares	Amount	Earnings	Equity
Balances, 12/31/18	4000	60000	16240	76240
2019 Net Income				28500
Cash Dividends				-19460
Addition to retained earnings
Balances, 12/31/19				85280

d. Arlington's 2019 EVA = NOPAT - WACC(Total assets - current liabilities)

= 33,460 - 10%(119,640-23,400) = 33,360 - 9,624

= 23,836