HOW DO I SHOW THE FREE CASH FLOW (FCF's) FOR D'LEON Inc PART 1.

D'LEON INc., PART I 3-20 FINANCIAL STATEMENTS AND TAXES Donna Jamison, a 2011 graduate of the University of Florida, with 4 years of banking experience, was recently brought in as assistant to the chairperson of the board of D'Leon Inc., a small food producer that operates in north Florida and whose specialty is high-quality pecan and other nut products sold in the snack foods market. D'Leon's president, Al Watkins, decided in 2015 to undertake a major expansion and to "go national" in competition with Frito-Lay, Eagle, and other major snack foods companies. Watkins believed that D'Leon's products were of higher quality than the competition's; that this quality differential would enable it to charge a premium price; and that the end result would be greatly increased sales, profits, and stock price. y? overview of D'Leon's find K ratio. or example, if the compana 45.6 days to the 32-day in gh" the financial statement nesses? The company doubled its plant capacity, opened new sales offices outside its home territory, and to show, in general terms, launched an expensive advertising campaign. D'Leon's results were not satisfactory, to put it mildly. Its board of directors, which consisted of its president, vice president, and major stockholders (all of whom were local businesspeople), was most upset when directors learned how the expansion was going. Unhappy suppliers were being paid late; and the bank was complaining about the deteriorating situation and threatening to cut off credit. As a result, Watkins was informed that changes would have to be made-and quickly; otherwise, he would be fired. Also, at the board's insistence, Donna Jamison was brought in and given the job of assistant to Fred Campo, a retired banker who was D'Leon's chairperson and largest stockholder. Campo agreed to give up a few of his golfing days and help nurse the company back to health, with Jamison's help. Jamison began by gathering the financial statements and other data given in Tables IC 3.1, IC 3.2, IC 3.3, and IC 3.4. Assume that you are Jamison's assistant. You must help her answer the following questions for Campo. (Note: We will continue with this case in Chapter 4, and you will feel more comfortable with the analysis there. But answering these questions will help prepare you for Chapter 4. Provide clear explanations.) rect D'Leon's taxes? teris Balance Sheets TABLE IC 3.1 2015 2016 Assets Cash 57,600 7,282 Accounts receivable 351,200 632,160 Inventories 715,200 1,287,360 Total current assets $1,124,000 $1,926,802 Gross fixed assets 491,000 1,202,950 Less accumulated depreciation 146,200 263,160 S 344,800 $1,468,800 Net fixed assets $ 939,790 Total assets $2,866,592 Liabilities and Equity $ 524,160 Accounts payable $145,600 489,600 136,000 Accruals 200,000 636,808 Notes payable $1,650,568 481,600 Total current liabilities Long-term debt Common stock (100,000 shares) 723,432 323,432 460,000 460,000 203,768 663,768 $1,468,800 32,592 Retained earnings 492,592 Total equity Total liabilities and equity $2,866,592 TABLE IC 3.2 Income Statements 2015 2016 Sales $6,034,000 $3,432,000 Cost of goods sold 5,528,000 2,864,000 Other expenses 519,988 358,672 Total operating costs excluding depreciation and amortization Depreciation and amortization EBIT $6,047,988 $3,222,672 116,960 (S 130,948) 18,900 190,428 Interest expense 136,012 43,828 S 146,600 EBT (S 266,960) Taxes (40 %) (106,784) (S 160,176) 58,640 Net income $ 87,960 EPS 1.602) $ 0.880 DPS 0.110 0.220 Book value per share 4.926 6.638 Stock price 2.25 8.50 Shares outstanding 100,000 100,000 rate 40.00% 40.00 % Lease payments Sinking fund payments 40,000 40,000 0 The firm had sufficient taxable income in 2014 and 2015 to obtain its full tax refund in 2016, TABLE IC 3.3 Statement of Stockholders' Equity, 2016 Common Stock Retained Total Stockholders Earnings Shares Amount Equity Balances, December 31, 2015 100,000 $ 663,768 $460,000 $203,768 2016 Net income (160,176) Cash dividends (11,000) Addition (subtraction) to retained earnings Balances, December 31, 2016 (171,176) S 492,592 $ 32,592 100,000 $460,000 99 Chapter 3 Financial Statenents, Cash Flow, and Taxes Statement of Cash Flows, 2016 TABLE IC 3.4 Operating Activities Net income (S 160,176) Depreciation and amortization 116,960 378,560 Increase in accounts payable Increase in accruals 353,600 (280,960) Increase in accounts receivable (572,160) Increase in inventories ($ 164,176) Net cash provided by operating activities Long-Term Investing Activities Additions to property, plant, and equipment Net cash used in investing activities (S 711,950) (S 711,950) Financing Activities Increase in notes payable $ 436,808 Increase in long-term debt 400,000 Payment of cash dividends (11,000) S 825,808 Net cash provided by financing activities Summary Net decrease in cash ($ 50,318) Cash at beginning of year Cash at end of year 57,600 7,282