The balance sheet, income statement, and statement of cash flows for the Pitts Corporation are shown in Exhibit 11. Note that the statement of cash flows follows a convention according to which the positive numbers of \($400\) million and \($85\) million for “cash used for investing activities” and “cash used for financing activities,” respectively, indicate outflows and thus amounts to be subtracted. Analysts will also encounter a convention in which the value “(400)” for “cash provided by (used for) investing activities” would be used to indicate a subtraction of \($400\).

Note that the Pitts Corporation had net income of \($240\) million in 2012. In the following, show the calculations required to do each of the following:
i. Calculate FCFF starting with the net income figure.
ii. Calculate FCFE starting from the FCFF calculated in Part 1.
iii. Calculate FCFE starting with the net income figure.
iv. Calculate FCFF starting with CFO.
v. Calculate FCFE starting with CFO.

Transcribed Image Text:

EXHIBIT 11 Financial Statements for Pitts Corporation (in Millions, except for Per-Share Data) Year Ended 31 December 2011 2012 Balance Sheet Assets Current assets Cash and equivalents Accounts receivable Inventory Total current assets $190 $200 560 600 410 440 1,160 1,240 Gross fixed assets 2,200 2,600 Accumulated depreciation (900) (1,200) Net fixed assets 1,300 1,400 Total assets $2,460 $2,640 Liabilities and shareholders' equity Current liabilities Accounts payable $285 $300 Notes payable 200 250 Accrued taxes and expenses 140 150 Total current liabilities 625 700 Long-term debt Common stock 865 890 100 100 Additional paid-in capital 200 200 Retained earnings 670 750 Total shareholders' equity 970 1,050 Total liabilities and shareholders' equity $2,460 $2,640