1. A company has EBIT of $32 million, depreciation of $5 million, and a 40% tax rate. It needs to spend $10 million on new fixed assets and $15 million to increase its current assets, and it expects its payables to increase by $2 million and its accruals to increase by $3 million and its notes payable to increase by $8 million. The firm’s current liabilities consist of only accounts payable, accruals, and notes payable. What is its free cash flow?
2. For 2016, Miami Rivets reported $22.0 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital. Its weighted average cost of capital is 9% and its federal-plus-state income tax rate was 35%. What was the firm's Economic Value Added (EVA), that is, how much value did management add to stockholders' wealth during 2016?
3. Over the years, Dolphin Corporation's stockholders have provided $34,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 2,000,000 shares of common stock outstanding, and it sells at a price of $30 per share. How much value has Dolphin's management added to stockholder wealth over the years, i.e., what is Dolphin 's MVA?
4. Using the tax table 3.6 of your textbook, calculate the tax liability and average tax rate on $250,000 of taxable income.