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Problem 3-24 Free Cash Flow to the Firm (LO3) The following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD'S CORP., 2012 (Figures in $ millions) Net sales 27,570 Costs 17,572 Depreciation 1,405 Earnings before interest and taxes 8,593 (EBIT) Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' Assets 2012 2011 equity 2012 2011 Current assets Current liabilities Cash and marketable 2,339 2,339 Debt due for repayment 376 securities Receivables 1,378 1,338 Accounts payable 3,406 3,146 Inventories 125 120 Total current liabilities 3,406 3,522 Other current assets 1,092 619 Total current assets 4,934 4,416 Fixed assets Long-term debt 13,636 12,137 Property, plant, and 24,680 22,838 Other long-term liabilities 3,060 2,960 equipment Intangible assets 2,807 2,656 Total liabilities 20,102 18,619 (goodwill) Other long-term assets 2,986 3,102 Total shareholders' equity 15,305 14,393 Total assets 35,407 33,012 Total liabilities and shareholders' equity 35,407 33,012 In 2012 McDonald's had capital expenditures of $1,842. NOTE: Use the free cash flow to the firm (FCFF) formula as presented in the lecture notes to solve this problem. The text incorrectly uses the pretax interest payments in the calculation. Also note that the hints will not be correct. Calculate McDonald's free cash flow to the firm in 2012. (Enter your answer in millions.) Free cash flow million b. If McDonald's was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) Additional tax million

Problem 3-24 Free Cash Flow to the Firm (LO3) The following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD'S CORP., 2012 (Figures in $ millions) Net sales 27,570 Costs 17,572 Depreciation 1,405 Earnings before interest and taxes 8,593 (EBIT) Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' Assets 2012 2011 equity 2012 2011 Current assets Current liabilities Cash and marketable 2,339 2,339 Debt due for repayment 376 securities Receivables 1,378 1,338 Accounts payable 3,406 3,146 Inventories 125 120 Total current liabilities 3,406 3,522 Other current assets 1,092 619 Total current assets 4,934 4,416 Fixed assets Long-term debt 13,636 12,137 Property, plant, and 24,680 22,838 Other long-term liabilities 3,060 2,960 equipment Intangible assets 2,807 2,656 Total liabilities 20,102 18,619 (goodwill) Other long-term assets 2,986 3,102 Total shareholders' equity 15,305 14,393 Total assets 35,407 33,012 Total liabilities and shareholders' equity 35,407 33,012 In 2012 McDonald's had capital expenditures of $1,842. NOTE: Use the free cash flow to the firm (FCFF) formula as presented in the lecture notes to solve this problem. The text incorrectly uses the pretax interest payments in the calculation. Also note that the hints will not be correct. Calculate McDonald's free cash flow to the firm in 2012. (Enter your answer in millions.) Free cash flow million b. If McDonald's was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) Additional tax million

Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter16: Statement Of Cash Flows: Another Look
Section: Chapter Questions
Problem 4P
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Problem 3-24 Free Cash Flow to the Firm (LO3) The following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD'S CORP., 2012 (Figures in $ millions) Net sales 27,570 Costs 17,572 Depreciation 1,405 Earnings before interest and taxes 8,593 (EBIT) Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' Assets 2012 2011 equity 2012 2011 Current assets Current liabilities Cash and marketable 2,339 2,339 Debt due for repayment 376 securities Receivables 1,378 1,338 Accounts payable 3,406 3,146 Inventories 125 120 Total current liabilities 3,406 3,522 Other current assets 1,092 619 Total current assets 4,934 4,416 Fixed assets Long-term debt 13,636 12,137 Property, plant, and 24,680 22,838 Other long-term liabilities 3,060 2,960 equipment Intangible assets 2,807 2,656 Total liabilities 20,102 18,619 (goodwill) Other long-term assets 2,986 3,102 Total shareholders' equity 15,305 14,393 Total assets 35,407 33,012 Total liabilities and shareholders' equity 35,407 33,012 In 2012 McDonald's had capital expenditures of $1,842. NOTE: Use the free cash flow to the firm (FCFF) formula as presented in the lecture notes to solve this problem. The text incorrectly uses the pretax interest payments in the calculation. Also note that the hints will not be correct. Calculate McDonald's free cash flow to the firm in 2012. (Enter your answer in millions.) Free cash flow million b. If McDonald's was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) Additional tax million
Transcribed Image Text:Problem 3-24 Free Cash Flow to the Firm (LO3) The following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD'S CORP., 2012 (Figures in $ millions) Net sales 27,570 Costs 17,572 Depreciation 1,405 Earnings before interest and taxes 8,593 (EBIT) Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD'S CORP., 2012 (Figures in $ millions) Liabilities and Shareholders' Assets 2012 2011 equity 2012 2011 Current assets Current liabilities Cash and marketable 2,339 2,339 Debt due for repayment 376 securities Receivables 1,378 1,338 Accounts payable 3,406 3,146 Inventories 125 120 Total current liabilities 3,406 3,522 Other current assets 1,092 619 Total current assets 4,934 4,416 Fixed assets Long-term debt 13,636 12,137 Property, plant, and 24,680 22,838 Other long-term liabilities 3,060 2,960 equipment Intangible assets 2,807 2,656 Total liabilities 20,102 18,619 (goodwill) Other long-term assets 2,986 3,102 Total shareholders' equity 15,305 14,393 Total assets 35,407 33,012 Total liabilities and shareholders' equity 35,407 33,012 In 2012 McDonald's had capital expenditures of $1,842. NOTE: Use the free cash flow to the firm (FCFF) formula as presented in the lecture notes to solve this problem. The text incorrectly uses the pretax interest payments in the calculation. Also note that the hints will not be correct. Calculate McDonald's free cash flow to the firm in 2012. (Enter your answer in millions.) Free cash flow million b. If McDonald's was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35% on the revised pretax income.) (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole number.) Additional tax million
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