Introduction:
A company’s free each flow represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (Capital expenditures) and the payment of dividends. Having positive
In money related bookkeeping, a cash flow explanation, otherwise called the announcement of
To choose:
Compute free cash flow and the cash flow adequacy ratio.
Comment on Rollin’s ability to expand its operations.
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Chapter 11 Solutions
Cornerstones of Financial Accounting
- In addition to the projects evaluated above, DEVCON Industries is considering several other savings and financing options in an effort to expand operations and improve overall efficiency of operations, while fully investing idle cash. (a) Based on Statement of Financial Position as at December 31, 2019, the Company had $270,000,000 is Cash & Equivalents. Of this, $20,000,000 was in a fixed deposit that is due to mature on December 1, 2020. The company is considering the following investment options for these funds: Investment Alpha compounded semi-annually Investment Beta Annual Interest Rate of 8.25%, compounded monthly Annual Interest Rate of 8.5%, Investment Gamma Annual Interest Rate of 7.96%, compounded daily Required: i. Advise the company on the best investment option for the maturing funds. ii. Based on your choice from part (i), if DEVCON Industries invests the lump sum of $20,000,000 on December 2, 2020 and leaves it in the account for 4 years, what will be the value of the…arrow_forwardAs a financial analyst, you have been tasked with evaluating Randy Watson Music's free cash flow. Based on the 2022 income statement, EBIT was $41 million, the tax rate was 21 percent, and its depreciation expense was $6 million. NOPAT gross fixed assets increased by $28 million from 2021 and 2022. The company's current assets increased by $18 million and current liabilities increased by $14 million. Calculate the operating cash flow (OCF) for 2022. (Enter your answer in millions of dollars.)arrow_forwardKabab Co. is considering a $240,000 investment, which will provide net returns of $110,000, $160,000, and $220,000 in the second, third, and fourth years, respectively. What is the payback period? Round up to the next month Use the following table: Year Cash Outflow Cash Inflow Net Cash Flow Cumulative Cash Flowarrow_forward
- Apple Inc.’s 2021 Consolidated Financial Statements (FYE 9/25/21) reveal a $11,085,000,000 cash outflow for investments in fixed assets (purchases of property, plant and equipment). Assume the average useful life is five years and Apple Inc.’s minimum required rate of return is 12% in 2021 for these investments. Calculate the minimum average annual net cash inflow necessary for these investments to be acceptable. Using the average annual net cash inflows calculated in requirement 1 and the $11,085,000,000 cash outflow for investments, determine the payback period.arrow_forward(a) Assume JPM has a Liquidity Coverage Ratio of 112%. Assume JPM's High Quality Liquid Assets total $750 billion, what is JPM's 30-day net cash outflow? What is JPM's 30-day net cash outflow? (b) At year - end, 2022, JPM total assets $3, 665,743, 000, 000 ($3.665 trillion). What fraction of total assets are risk - weighted?arrow_forwardA firm with $1,000,000 in cash holdings and an annual CGS of $2,500,000 has targeted a DCH of 250 days for the next fiscal year. Assuming that CGS will remain unchanged in the upcoming year, what change in cash holdings would be required? A in cash holdings = $_arrow_forward
- Assume that today is December 31, 2018, and that the following information applies to Abner Airlines: After-tax operating income [EBIT(1 - T)] for 2019 is expected to be $650 million. The depreciation expense for 2019 is expected to be $200 million. The capital expenditures for 2019 are expected to be $325 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 4% per year. The required return on equity is 16%. The WACC is 10%. The firm has $200 million of non-operating assets. The market value of the company's debt is $3.940 billion. 80 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardCarlsbad Corporation’s sales are expected to increase from $5 millionin 2018 to $6 million in 2019, or by 20%. Its assets totaled $3 million at the end of 2018.Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At theend of 2018, current liabilities are $1 million, consisting of $250,000 of accounts payable,$500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecastedto be 3%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast theadditional funds Carlsbad will need for the coming year.arrow_forwardUse the following information for numbers 23 to 25: Corporate Valuators, Inc. is assessing the value of two companies, Capital Corp. and Earm, Inc. which projects the following net cash flows in the next five years, with its desired required rate of return. Net cash flows approximate to be its earnings also. The balance sheet of Capital Corp. and Eam, Inc. has recorded Property, Plant and Equipment of P100 million and P200 million, respectively. Operating assets are estimated at 80% and 70% respectively and the rest are considered idle. Capital Corp. 8,000,000 8,800,000 9,680,000 10,648,000 11,712,800 Required return 8% Net cash flows Net cash flows Earn, Inc. 9,600,000 10,560,000 11,616,000 12,777,000 14,055,3 6% Year 1 2 3 4 23. Using capitalization of earnings, compute for the equity value of Capital Corp. 24. Using capitalization of earnings, compute for the equity value of Eam, Inc. 25. Which company has higher equity value?arrow_forward
- You are considering an investment in Ray company, and want to evaluate the firm's free cash flow. From the income statement, you see that Ray company earned an EBIT of $62 million, had a tax rate of 21 percent, and its depreciation expense was $6 million. Ray's gross fixed assets increased by $32 million from 2020 and 2021. The firm's current assets increased by $24 million and spontaneous current liabilities increased by $14 million. Calculate Ray's operating cash flow for 2021. (Enter your answer in millions of dollars rounded to 2 decimal places.)arrow_forwardA research analyst wants to use the discounted free cash flow model to determine the enterprise value of Machinex Ltd, a heavy machinery manufacturing company. The analyst has put together the following forecast of Machinex's income statement over the next three years (all figures in $ million): All figures in $ million Financial year ending 31 March 2024 2025 Revenue 180.0 Less: Operating expenses 120.0 Operating earnings before depreciation 60.0 Less: Depreciation 30.0 Earnings before interest and tax (EBIT) 30.0 5.0 25.0 7.0 18.0 Less: Interest expense Earnings before tax Less: Tax expense Net profit (earnings) 2026 200.0 240.0 128.0 145.0 72.0 95.0 25.0 20.0 47.0 75.0 5.0 5.0 42.0 70.0 11.8 19.6 30.2 50.4 In addition, the analyst has determined that: Operating working capital (OWC) in each year will be 15% of revenue in that year Capital expenditure (capex) will be $30 million in each year The corporate tax rate is 28%. . Machinex's free cash flow to the firm (FCF) in year 2026 is…arrow_forwardFor the year ending 2022, determine the Net New Equity, Change in Net Working Capital, Net Capital Spending and Operating Cash flow. Calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders for 2022. Calculate the Dividends per Share and Earnings per Share for each year for Brown Company. Briefly comment on the company’s cash flows for 2022 in light of an expansion plan which will be financed by both debt and equity.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT