Question #170158
FREE CASH FLOW Bailey Corporation’s financial statements (dollars and shares are in
millions) are provided here.
76 Part 2 Fundamental Concepts in Financial Management
Balance Sheets as of December 31
2008 2007
Assets
Cash and equivalents $ 14,000 $ 13,000
Accounts receivable 30,000 25,000
Inventories 28,125 21,000
Total current assets $ 72,125 $ 59,000
Net plant and equipment 50,000 47,000
Total assets $122,125 $106,000
Liabilities and Equity
Accounts payable $ 10,800 $ 9,000
Notes payable 6,700 5,150
Accruals 7,600 6,000
Total current liabilities $ 25,100 $ 20,150
Long-term bonds 15,000 15,000
Total debt $ 40,100 $ 35,150
Common stock (5,000 shares) 50,000 50,000
Retained earnings 32,025 20,850
Common equity $ 82,025 $ 70,850
Total liabilities and equity $122,125 $106,000
Income Statement for Year Ending December 31, 2008
Sales $214,000
Operating costs excluding depreciation and amortization 170,000
EBITDA $ 44,000
Depreciation & amortization 5,000
EBIT $ 39,000
Interest 1,750
EBT $ 37,250
Taxes (40%) 14,900
Net income $ 22,350
Dividends paid $ 11,175
a. What was net working capital for 2007 and 2008?
b. What was Bailey’s 2008 free cash flow?
c. Construct Bailey’s 2008 statement of stockholders’ equity.
Expert's answer
Net working capital= Current Assets - Current Liabilities
2008
$72,125 - $25,100 = $47,025
2007
$59,000 - $20,150 = $38,850
Free cash flows
FCF = Net income+ Depreciation- increase in working capital
FCF = $22,350+$5000-($47,025-$38,850)=$19,175
Statement of stakeholders equity
Opening balance. $82,025
Add Net income $22,350
Total. $104,375
Less Dividend. $11,175
Balance 2018. $93,200
