Question

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here. Balance Sheets as of December 31 2016 2015 Assets Cash and equivalents 14,000 15,000 Accounts receivable 30,000 35,000 33,070 29,000 Inventories $ 83,070 Total current assets $73,000 Net plant and equipment 50,000 46,000 Total assets $133,070 $119,000 Liabilities and Equity Accounts payable $10,500 9,000 Accruals 7,100 6,000 Notes payable 6,600 5,050 $ 24,200 20,050 Total current liabilities Long-term bonds 10,000 10,000 Total liabilities 34,200 30,050 Common stock (4,000 shares) 40,000 40,000 Retained earnings 58,870 48,950 Common equity 98,870 88,950 Total liabilities and equity $133,070 $119,000 Income Statement for Year Ending December 31, 2016 Sales $225,000 180,000 Operating costs excluding depreciation and amortization $45,000 EBITDA 3,000 Depreciation & amortization 42,000 EBIT Interest 3,400 ЕВТ 38,600 Taxes (40%) 15,440 Net income 23,160 Dividends paid 13,240 Enter your answers in millions. For example, an answer of $25,000,000,000 should be entered as 25,000. a. What was net operating working capital for 2015 and 2016? 2015 $ 50470 million 2016 $ million 47950 b. What was Arlington's 2016 free cash flow? million c. Construct Arlington's 2016 statement of stockholders' equity. Total Stockholders Common Stock Retained Earnings Equity Shares Amount Balances, 12/31/15 million million million million million 2016 Net Income Cash Dividends million Addition to retained earnings million Balances, 12/31/16 million million million million d. What was Arlington's 2016 EVA? Assume that its after-tax cost of capital is 10%. Round your answer to two decimal places. million e. What was Arlington's MVA at year-end 2016? Assume that its stock price at December 31, 2016 was $25 million

Answer 1

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A E Answer to Question a 1 Calculation of net operating working capital for 2015 and 2016 2 3 Operating Working Capital Current Assets Current Liabilities 4 Particulars Year 5 2015 2016 73,000 S 6 Current Assets 83,070 Current Liabiities (20050-5050,24200-6600) (Total Current Liabilities Notes Payable) S 17,600 7 15,000 Net Operaing Working Capital S 58,000 65,470 10 11 Answer to Question b 12 Calculation of Arlington's 2016 free cash flows 13 14 Particulars Amount 15 EBIT*(1-Tax%) $42,000(1-40 %) 16 Add Depreciation & Amortization 17 Less Capital expenditure ($50,000 $46,000) 18 Less Change in Working Capital ($65,470-$58,000) 25,200 3,000 S 4,000 7,470 19 Free Cash Flows 16,730 20 21 Answer to Questionc 22 23 Calculation of Arlington's 2016 Statement of Stockholder's equity 24 Retained earnings Total Equity 25 Particulars Common Stock Shares Amount 26 4000 S 27 Balance,12/31/15 40,000 48,950 88,950 28 2016 Net Income 23,160 29 Cash Dividends 13,240 30 Addition to retained earnings 9,920 4000 S 40,000 $ 85,350 $ 31 Balance, 12/31/16 98,870

32 33 34 Answer to Questiond 35 Calculation of Arlington's 2016 EVA 36 Cost of Capital 10% 37 Total Capital invested Notes Payable Long term debt Common Equity + S 38 115,470 39 Particulars Amount 40 EBIT*(1-Tax%) 41 Less Capital Charges ($115,470*10 %) S 25,200 11,547 S 42 EVA 13,653 43 44 45 Answer to Questione 46 Calculation of Arlington's 2016 MVA 47 Amount 48 Particulars 49 Number of Shares 4000 50 Price of Stock $25 51 Market Value S 100,000 52 Book Value 98,870 S 53 MVA 1,130 54 55