At the end of last year, King Power Company achieved $6 million in revenues (EBITDA). Depreciation...

 

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At the end of last year, King Power Company achieved $6 million in revenues (EBITDA). Depreciation expense was $1.2 million, interest expense expense was $800,000, and the corporate tax rate was 35%. At the end of the fiscal year, the company had current assets totaling $12 million, $4 million in accounts payable, $1.5 million in accrued debt, $1.3 million in other debt payable, and $8 million in property, plant and equipment. Assume King Power has no excess cash, uses debt and equity to finance its operations, has no current liabilities, and recognizes depreciation periodically. 1. Determine the net income or loss of the business. Explain how this result can help the manager in making decisions in the company. (6 points) 2. Calculate operating and net working capital. Explain the difference between the two results. (6 points) 3. If the company had $6 million in property, plant, and equipment last year and net operating working capital remained constant, what is the company's free cash flow? Explain how the cash flow output helps managers in the financial planning process. (8 points) At the end of last year, King Power Company achieved $6 million in revenues (EBITDA). Depreciation expense was $1.2 million, interest expense expense was $800,000, and the corporate tax rate was 35%. At the end of the fiscal year, the company had current assets totaling $12 million, $4 million in accounts payable, $1.5 million in accrued debt, $1.3 million in other debt payable, and $8 million in property, plant and equipment. Assume King Power has no excess cash, uses debt and equity to finance its operations, has no current liabilities, and recognizes depreciation periodically. 1. Determine the net income or loss of the business. Explain how this result can help the manager in making decisions in the company. (6 points) 2. Calculate operating and net working capital. Explain the difference between the two results. (6 points) 3. If the company had $6 million in property, plant, and equipment last year and net operating working capital remained constant, what is the company's free cash flow? Explain how the cash flow output helps managers in the financial planning process. (8 points)

Answer rating: 100% (QA)

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