At year-end, King Power Company achieved $6 million in revenue (EBITDA). Depreciation expense was $1.2 million,...

  

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At year-end, King Power Company achieved $6 million in revenue (EBITDA). Depreciation expense was $1.2 million, interest paid 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 accumulated debt, $1.3 million in other debts payable and $8 million in property, plant and equipment. Suppose King Power has no excess cash, uses debt and equity to fund its operations, has no current liabilities, and recognizes depreciation periodically. 1. Determine the net income or loss of the company. Explain how this result can help the manager in making decisions in the company. (6 points) 2. Calculate net and operating working capital. Explain the difference between the two results. (6 points) 3. If the company had $6 million in property, plant and equipment the previous year and net operating capital remained constant, what is the company's free cash flow? Explains how the disposable flow result helps managers in the financial planning process. (8 points) B. Balance Sheet (Value: 25 points) River & Stone Corp.'s assets include current assets, property, plant and equipment and does not have excess cash (Free Cash). It has assets valued at $4 million and its fixed assets are valued at $3 million. It reports debts payable of $350,000, long-term debts of $650,000 and stockholders' equity of $2 million. Its statement of situation reflects that it has accounts payable and accumulated debts. Generally, the company operates on a debt and stockholders' equity basis. 1. Determine the total amount of the company's debt. (4 points) 2. Calculate the balance of current assets and liabilities (5 points) 3. Determine the net working capital of the company. (5 points) 4. Calculate net working capital. (5 points) 5 Explain how net working capital and operating working capital can support managerial decisions and strategic goals. (6 points) At year-end, King Power Company achieved $6 million in revenue (EBITDA). Depreciation expense was $1.2 million, interest paid 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 accumulated debt, $1.3 million in other debts payable and $8 million in property, plant and equipment. Suppose King Power has no excess cash, uses debt and equity to fund its operations, has no current liabilities, and recognizes depreciation periodically. 1. Determine the net income or loss of the company. Explain how this result can help the manager in making decisions in the company. (6 points) 2. Calculate net and operating working capital. Explain the difference between the two results. (6 points) 3. If the company had $6 million in property, plant and equipment the previous year and net operating capital remained constant, what is the company's free cash flow? Explains how the disposable flow result helps managers in the financial planning process. (8 points) B. Balance Sheet (Value: 25 points) River & Stone Corp.'s assets include current assets, property, plant and equipment and does not have excess cash (Free Cash). It has assets valued at $4 million and its fixed assets are valued at $3 million. It reports debts payable of $350,000, long-term debts of $650,000 and stockholders' equity of $2 million. Its statement of situation reflects that it has accounts payable and accumulated debts. Generally, the company operates on a debt and stockholders' equity basis. 1. Determine the total amount of the company's debt. (4 points) 2. Calculate the balance of current assets and liabilities (5 points) 3. Determine the net working capital of the company. (5 points) 4. Calculate net working capital. (5 points) 5 Explain how net working capital and operating working capital can support managerial decisions and strategic goals. (6 points)