Answer to Question #170158 in Finance for JANA

Question

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.

Answer 1

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