NET INCOME AND CASH FLOW Last year Rattner Robotics had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. At year-end, it had $14 million in current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Rattner uses only debt and common equity to fund its operations. (In other words, Rattner has no preferred stock on its balance sheet.) Rattner had no other current liabilities. Assume that Rattner’s only noncash item was depreciation.
1) Rattner had $12 million in net plant and equipment the prior year. Its net operating working capital has remained constant over time. What is the company’s free cash flow (FCF) for the year that just ended?
2) Rattner has 500,000 common shares outstanding and the common stock amount on the balance sheet is $5 million. The company has not issued or repurchased common stock during the year. Last year’s balance in retained earnings was $11 2 million and the firm paid out dividends of $1 2 million during the year. Develop Rattner’s end-of-year statement of stockholders’ equity.