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: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter12: The Statement Of Cash Flows
Section: Chapter Questions
Problem 12.2DC
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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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