Question: Cracker Barrel, which operates restauarants and gift stores, is reexamining its policy of paying minimal dividends. In 1995, Cracker Barrel reported net income of $ 66 million; it had capital expenditures of $ 150 million in that year and claimed depreciation of only $ 50 million. The working capital in 1995 was $ 43 million on sales of $ 783 million. Looking forward, Cracker Barrel expects the following:
• Net Income is expected to grow 17% a year for the next 5 years
• During the 5 years, capital expenditures are expected to grow 10% a year and depreciation is expected to grow 15% a year
• The working capital as a percent of revenues is expected to remain at 1995 levels, and revenues are expected to grow 10% a year during the period
• The company has not used debt to finance its net capital expenditures and does not plan to use any for the next 5 years
a. Estimate how much cash Cracker Barrel would have available to pay out to its stockholders over the next 5 years
b. How would your answer change, if the firm plans to increase its leverage by borrowing 25% of its net capital expenditure and working capital needs?