Question

1. In 2017, Johnson Furniture had $5 in operating income (EBIT). The firm had a net depreciation expense of $1 million and an interest expense of $1 million. Its corporate tax rate was 40%. The firm has $14 million in operating current assets and $4 million in operating current liabilities. It has $15 in net plant and equipment. It estimates that it has an after-tax cost of capital of 10%. Assume that Johnson Furniture’s only non-cash item was depreciation.

A. What was the firm’s net income for the year?

B. What was the firm’s net cash flow?

C. What was the firm’s net operating profit after taxes?

D. Calculate net operating working capital and total net operating capital for the current year,

E. If total net operating capital in the previous year was $24 million, what was the firm’s free cash flow for the year?

F. What was the return on invested capital?

G. What was the firm’s Economic Value Added?

Answer 1