10. Problem 3.17 (Free Cash Flow)

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Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (millions of dollars)

	2021		2020
Sales	$	2,210.0	$	1,700.0
Operating costs excluding depreciation and amortization		1,713.0		1,445.0
EBITDA	$	497.0	$	255.0
Depreciation and amortization		49.0		37.0
Earnings before interest and taxes (EBIT)	$	448.0	$	218.0
Interest		48.6		37.4
Earnings before taxes (EBT)	$	399.4	$	180.6
Taxes (25%)		159.8		72.2
Net income	$	239.6	$	108.4
Common dividends	$	215.6	$	86.7

Powell Panther Corporation: Balance Sheets as of December 31 (millions of dollars)

	2021		2020
Assets
Cash and equivalents	$	26.0	$	24.0
Accounts receivable		204.0		170.0
Inventories		489.0		425.0
Total current assets	$	719.0	$	619.0
Net plant and equipment		486.0		374.0
Total assets	$	1,205.0	$	993.0
Liabilities and Equity
Accounts payable	$	149.0	$	119.0
Accruals		131.0		119.0
Notes payable		44.2		34.0
Total current liabilities	$	324.2	$	272.0
Long-term bonds		442.0		340.0
Total liabilities	$	766.2	$	612.0
Common stock		382.2		348.4
Retained earnings		56.6		32.6
Common equity	$	438.8	$	381.0
Total liabilities and equity	$	1,205.0	$	993.0

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2020 and 2021? Assume the firm has no excess cash.

   2020: $

   2021: $

2. What was the 2021 free cash flow?

   $

3. How would you explain the large increase in 2021 dividends?

   1. The large increase in free cash flow from 2020 to 2021 explains the large increase in 2021 dividends.
   2. The large increase in net income from 2020 to 2021 explains the large increase in 2021 dividends.
   3. The large increase in EBIT from 2020 to 2021 explains the large increase in 2021 dividends.
   4. The large increase in sales from 2020 to 2021 explains the large increase in 2021 dividends.
   5. The large increase in retained earnings from 2020 to 2021 explains the large increase in 2021 dividends.

   -Select-IIIIIIIVV