Problem 3-10

A group of investors is considering buying the Wheelwright Corporation, but does not want to contribute to the companys financial support after the purchase. Wheelwrights management has offered the following financial statements covering last year ($M omitted):

Wheelwright Corporation Balance Sheets

ASSETS Beginning Ending Cash 6 9 Accts receivable 13 20 Inventory 12 7 CURRENT ASSETS 31 36 Fixed Assets Gross 100 115 Accumulated depreciation (12) (18) Net fixed assets 88 97 TOTAL ASSETS 119 133

LIABILITIES & EQUITY Accts payable 17 21 Accruals 6 8 CURRENT LIABILITIES 23 29 Debt 71 59 Equity 25 45 TOTAL LIABILITIES & EQUITY 119 133

Wheelwright Corporation Income Statement Sales 100 COGs* 36 Depreciation 6 Gross Margin 58 Expenses 24 EBIT 34 Interest 6 EBT 28 Tax 8 Net income 20 *Cost of Goods Sold Wheelwright paid no dividends and sold no new stock during the year.

The firms tax rate is 40%.

Develop Wheelwrights free cash flow and make a recommendation as to whether it seems to be an appropriate acquisition for the investors. Round your answer to one decimal place. Enter your answer in million of dollar.

Free Cash flow $ millions