1. Review the Income Statement and Balance Sheet below:

2. Calculate the Free Cash Flow, assuming a 21% tax rate. Show your math.

3. Optional: Does this look like an attractive company to buy? Why or why not?

DPH TREE FARM, INC. Income Statement as of December 31, 2018 and 2017 (in Millions of dollars) 2018 2017 Net sales (all credit) $315 $275 Less: Cost of goods sold 133 120 Gross profits $182 $155 Less: Other operating expenses 17 15 Earnings before interest, taxes, depreciation, and $165 $140 amortization (EBITDA) Less: Depreciation and amortization 13 Earnings before interest and taxes (EBIT) $152 $128 Less: Interest 16 18 Earnings before taxes (EBT) $136 $110 Less: Taxes 46 40 Net income $ 90 $ 70 Less: Preferred stock dividends $ 10 $ 10 Net income available to common stockholders $ 60 Less: Common stock dividends 25 25 Addition to retained earnings $ 55 $ 35 12 DPH TREE FARM, INC. Balance Sheet as of December 31, 2018 and 2017 (in millions of dollars) 2018 2017 Assets Liabilities and Equity Current assets Current liabilities Cash and marketable securities $24 $25 Accrued wages and taxes Accounts receivable 70 65 Accounts payable Inventory 111 100 Notes payable Total $205 $190 Total Fixed assets Long-term debt Gross plant and equipment $368 $300 Total debt Less: Accumulated 53 40 Stockholders' equity depreciation Net plant and equipment $315 $260 Preferred stock (5 million shares) Other long-term assets 50 50 Common stock and paid in surplus (20 million shares) Retained earnings Total $365 $ 310 Total Total assets $570 $500 Total liabilities and equity $80 DPH TREE FARM, INC. Income Statement as of December 31, 2018 and 2017 (in Millions of dollars) 2018 2017 Net sales (all credit) $315 $275 Less: Cost of goods sold 133 120 Gross profits $182 $155 Less: Other operating expenses 17 15 Earnings before interest, taxes, depreciation, and $165 $140 amortization (EBITDA) Less: Depreciation and amortization 13 Earnings before interest and taxes (EBIT) $152 $128 Less: Interest 16 18 Earnings before taxes (EBT) $136 $110 Less: Taxes 46 40 Net income $ 90 $ 70 Less: Preferred stock dividends $ 10 $ 10 Net income available to common stockholders $ 60 Less: Common stock dividends 25 25 Addition to retained earnings $ 55 $ 35 12 DPH TREE FARM, INC. Balance Sheet as of December 31, 2018 and 2017 (in millions of dollars) 2018 2017 Assets Liabilities and Equity Current assets Current liabilities Cash and marketable securities $24 $25 Accrued wages and taxes Accounts receivable 70 65 Accounts payable Inventory 111 100 Notes payable Total $205 $190 Total Fixed assets Long-term debt Gross plant and equipment $368 $300 Total debt Less: Accumulated 53 40 Stockholders' equity depreciation Net plant and equipment $315 $260 Preferred stock (5 million shares) Other long-term assets 50 50 Common stock and paid in surplus (20 million shares) Retained earnings Total $365 $ 310 Total Total assets $570 $500 Total liabilities and equity $80