Assets Current assets Cash and marketable securities Receivables Inventories Other current assets Total current assets Fixed assets Property, plant, and equipment Intangible assets (goodwill) Other long-term assets Total assets Additional tax BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' SA 2012 2,343 1,382 129 1,096 4,950 24,684 2,811 2,990 2011 2,343 1,342 124 623 4,432 Long-term debt 22,842 Other long-term liabilities 2,660 3,106 35,435 33,040 equity Current liabilities Debt due for repayment Accounts payable Total current liabilities million Total liabilities Total shareholders' equity Total liabilities and shareholders' equity 2012 3,410 3,410 13,640 3,064 In 2012 McDonald's had capital expenditures of $3,056. a. Calculate McDonald's free cash flow in 2012. (Enter your answer in millions.) Free cash flow million If McDonald's was financed entirely by equity, how much more tax would the company b. have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) 20,114 15,321 35,435 2011 388 3,150 3,538 12,141 2,964 18,643 14,397 33,040

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The following table shows an abbreviated income statement and balance sheet for
McDonald's Corporation for 2012.
INCOME STATEMENT OF MCDONALD'S CORP.,
2012
(Figures in $ millions)
Net sales
Costs
Depreciation
Earnings before interest and taxes
(EBIT)
Interest expense
Pretax income
Taxes
Net income
27,574
17,576
1,409
8,589
524
8,065
2,628
5,437
Transcribed Image Text:The following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD'S CORP., 2012 (Figures in $ millions) Net sales Costs Depreciation Earnings before interest and taxes (EBIT) Interest expense Pretax income Taxes Net income 27,574 17,576 1,409 8,589 524 8,065 2,628 5,437
Assets
Current assets
Cash and marketable
securities
Receivables
Inventories
Other current assets
Total current assets
Fixed assets
Property, plant, and
equipment
Intangible assets
(goodwill)
Other long-term assets
Total assets
BALANCE SHEET OF MCDONALD'S CORP., 2012
(Figures in $ millions)
Liabilities and Shareholders'
Free cash flow
2012
2,343
1,382
129
1,096
4,950
24,684
2,811
2,990
35,435
2011
2,343
1,342 Accounts payable
124
623
4,432
2,660
3,106
equity
Current liabilities
Debt due for repayment
Long-term debt
22,842 Other long-term liabilities
33,040
Total current liabilities
million
Total liabilities
Total shareholders' equity
In 2012 McDonald's had capital expenditures of $3,056.
a. Calculate McDonald's free cash flow in 2012. (Enter your answer in millions.)
million
Total liabilities and shareholders'
equity
2012
-
3,410
3,410
13,640
3,064
b.
If McDonald's was financed entirely by equity, how much more tax would the company
have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round
intermediate calculations. Enter your answer in millions rounded to the nearest
whole number.)
Additional tax
2011
388
3,150
3,538
12,141
2,964
20,114 18,643
15,321 14,397
35,435 33,040
Transcribed Image Text:Assets Current assets Cash and marketable securities Receivables Inventories Other current assets Total current assets Fixed assets Property, plant, and equipment Intangible assets (goodwill) Other long-term assets Total assets BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' Free cash flow 2012 2,343 1,382 129 1,096 4,950 24,684 2,811 2,990 35,435 2011 2,343 1,342 Accounts payable 124 623 4,432 2,660 3,106 equity Current liabilities Debt due for repayment Long-term debt 22,842 Other long-term liabilities 33,040 Total current liabilities million Total liabilities Total shareholders' equity In 2012 McDonald's had capital expenditures of $3,056. a. Calculate McDonald's free cash flow in 2012. (Enter your answer in millions.) million Total liabilities and shareholders' equity 2012 - 3,410 3,410 13,640 3,064 b. If McDonald's was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) Additional tax 2011 388 3,150 3,538 12,141 2,964 20,114 18,643 15,321 14,397 35,435 33,040
Expert Solution
Concept Introduction:

Free cash flows are those cash flows in the business which can be used freely in business. This means operating cash flows after making net capital expenditures and also after contribution to net working capital. Interest is only being paid on debt funds, no interest expense will be incurred on equity funds.

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