Question

2) Free Cash Flow problems: Formulas: NOPAT = EBIT(1 -T) FCF = (EBIT(1 - T)+D&A) - Cap Ex- change in NOWC NOWC = Current assets - noninterest bearing current liabilities Problem #1: 3 Points LTD Corp. has cash of $15,000, $17,000 in accounts receivable, some inventory, total current assets of $71,500 and current liabilities of $22.025. If the company reported annual sales of $150,000, what is their inventory turnover. If the industry average is 5.1x, does LTD Corp. hold more, or less, inventory per dollar of sales compared to the industry? Problem #2: 3 Points Your uncle has $260,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end? show the cost of raw materials, work in process, and finished goous. IV HARU On Allied's balance sheet, we simply show a common stock line representing the "paid-in" capital of

Answer 1

Ans:

a.

Inventory turnover means how many times during a specific period the stock or inventory has been replaced.

Inventory turnover = Net Sales/Average inventory.

Average inventory= Total Current asset - cash - account receivable

= $71,500- $15,000 - $17,000 = $39,500.

Inventory Turnover = 150,000/39,500 = 3.8 times.

So if industory average is 5.1 times, LTD. corp is holding more inventory per dollar of sales compared to the industry.

b.

Initial investment $260,000 @ 7.5% per annum.

Calculation of withdrawl per annum:

Year	Principal	Interest @7.5%	Installment (Payout)	Balance
1	$260,000	$19,500	$35,000	$244,500
2	$244,500	$18,337.5	$35,000	$227,835.5
3	$227,835.5	$17,087.8	$35,000	$209,925.3
4	$209,925.3	$15,744.4	$35,000	$190,669.7
5	$190,669.7	$14,300	$35,000	$169,970
6	$169,970	$12,747.8	$35,000	$147,717.8
7	$147,717.8	$11,078.8	$35,000	$123,796.6
8	$123,796.6	$9,284.8	$35,000	$98,081.4
9	$98,081.4	$7,356	$35,000	$70,437
10	$70,437	$5,282.8	$35,000	$40,719.85

So he can withdraw for a maximum of 10 years so that he is left with a minimum of $25,000 at the end.