Question

The data for Rhodes Corporation's has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

1. What is the net operating profit after taxes (NOPAT) for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to one decimal place.

2. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

3. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

4. What is the free cash flow for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to one decimal place.

5. What is the ROIC for 2018? Round your answer to one decimal places.

6. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

Free Cash Flows (All dollar values are provided in millions.) 2018 Sales, ST Invest, Notes Pay, LT Debt factor increase Operating costs as % of sales Cash factor increase Accts. Rec factor increase Inventory factor increase Net Plant & Equip factor increase Accts Pay factor increase Accruals factor increase 1.10 80.00% 1.25 2017 Sales Cash as % of sales Accts Rec as % of sales Inventory as % of sales Net Plant & Equip as % of sales Accts Pay as % of sales Accruals as % of Sales 1.15 $4,000 1.40% 11.00% 19.00% 27.00% 6.00% 7.00% 1.20 1.20 1.25 1.10 Operating cost as % of sales Depreciation as % of Net Plant & Equip Interest rate Depreciation as % of Net Plant & Equip Interest rate Tax rate Payout rate 10.00% 10.00% 40.00% 90.00% Tax rate Payout rate Short-term investments as % of sales Notes payable as % of sales Long-term debt as % of sales Retained earnings multiple factor 85.00% 10.00% 10.00% 40.00% 80.00% 0.50% 2.00% 20.00% 1.50

Answer 1

Calculate net operating income after taxes (NOPAT) for 2018 as follows: NOPAT = Earning before interest and taxes (1 - Tax Rate) = $ 750.4 (1 -0.40) = $ 450.24 Hence, net operating income after taxes (NOPAT) for 2018 is $ 450.24 million b1. Calculate net operating working capital for 2017 as follows: Net operating working capital = Operating current assets - Operating current liabilities = ($ 1,276 - $ 20) - S 600 = $ 656 Hence, net operating working capital for 2017 is $ 656 million. 62. Calculate net operating working capital for 2018 as follows: Net operating working capital = Operating current assets - Operating current liabilities = ($ 1,510 - $ 22)-S 696 = $ 792 Hence, net operating working capital for 2018 is $ 792 million.

Calculate net operating capital for 2017 as follows: Total net operating capital = Net operating working capital + Non current operating assets = $ 656 +$ 1,080 = $ 1,736 Hence, net operating capital for 2017 is $ 1,736 million Calculate net operating capital for 2018 as follows: Total net operating capital = Net operating working capital + Non current operating assets = $ 792 +$ 1.296 = $ 2.088 Hence, net operating capital for 2018 is $ 2,088 million Calculate free cash flow for 2018 as follows: Calculation of free cash flows: Net operating profit after tax Add: Non cash expenses (Depreciation and amortiation) Less: Increase in Working Capital (1510 - 696)-(1,276-600) Less: Capital expenditure (Change in plant and equipment) (1296 - 1080) Free cash flows Amount $ 450.24 S 129.60 $ 138.00 $216.00 S 225.84 Hence, free cash flow for 2018 are $ 225.84 million.

Calculate return on invested capital (ROIC) for 2018 as follows: NOPAT Return on invested capital = = -X100 Long term debt + Total Common equity S 450.24 -x100 S 880 +1.230 = 21.34% Hence, return on invested capital (ROIC) for 2018 is 21.34% Compute the uses of free cash flows in 2018 as follows: After tax interest payment Net debt repayments Payment of dividends Repurchase of stock Net purchases of short term investments Uses of free cash flow for the year 2018 Interest (1- Tax rate) Debt in 2018 - Debt in 2017 Dividend paid in 2018 Equity in 2018 - Equity in 2017 Short term investment in 2018 - Short term investment in 2017 $94.6(1 -0.40) S 56.76 $ 880 - $ 800 S 80.00 $ 354.10 S354.10 $ 1,117.6 - $ 882 $234.70 $ 22 - $ 20 S 2.00