Question

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

	2019		2018
Sales	$	2,990.0	$	2,600.0
Operating costs excluding depreciation and amortization		2,243.0		2,210.0
EBITDA	$	747.0	$	390.0
Depreciation and amortization		80.0		73.0
Earnings before interest and taxes (EBIT)	$	667.0	$	317.0
Interest		65.8		57.2
Earnings before taxes (EBT)	$	601.2	$	259.8
Taxes (25%)		240.5		103.9
Net income	$	360.7	$	155.9
Common dividends	$	324.6	$	124.7

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

	2019		2018
Assets
Cash and equivalents	$	41.0	$	34.0
Accounts receivable		358.0		286.0
Inventories		458.0		416.0
Total current assets	$	857.0	$	736.0
Net plant and equipment		801.0		728.0
Total assets	$	1,658.0	$	1,464.0
Liabilities and Equity
Accounts payable	$	172.0	$	156.0
Accruals		98.0		78.0
Notes payable		59.8		52.0
Total current liabilities	$	329.8	$	286.0
Long-term bonds		598.0		520.0
Total liabilities	$	927.8	$	806.0
Common stock		647.3		611.2
Retained earnings		82.9		46.8
Common equity	$	730.2	$	658.0
Total liabilities and equity	$	1,658.0	$	1,464.0

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  502

   2019:  $  587

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.

Answer 1

Requiremnt 1: Net Operating Working Capital 2018 Year = $736-(286-52) = $ 502 2019 Year = $ 857-(329.8-59.8) = $ 587 Requirement2: 2019 Free Cash Flow Capital Expenditure = Net fixed assets in 2019 + Depreciation 209 - Net fixed Assets 2018 =801+80-728 $ 153.00 millions Free Cash Flow = EBIT(1-T) + Depreciation + Capital Expenditure - Change in net Operating Working Capital =667*(1-0.25)+80+153-85 $ 648.25 Millions $ 64,82,50,000.00 Requirement3: The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends Option A is Correct * Kindly Comment down for any clarifications/ queries and please rate answer.