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 (EBIT) 8,593 Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD’S CORP., 2012 (Figures in $ millions) Assets 2012 2011 Liabilities and Shareholders' equity 2012 2011 Current assets Current liabilities Cash and marketable securities 2,339 2,339 Debt due for repayment — 376 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 equipment 24,680 22,838 Other long-term liabilities 3,060 2,960 Intangible assets (goodwill) 2,807 2,656 Total liabilities 20,102 18,619 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 $3,052. a. Calculate McDonald’s free cash flow 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

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 (EBIT) 8,593 Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD’S CORP., 2012 (Figures in $ millions) Assets 2012 2011 Liabilities and Shareholders' equity 2012 2011 Current assets Current liabilities Cash and marketable securities 2,339 2,339 Debt due for repayment — 376 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 equipment 24,680 22,838 Other long-term liabilities 3,060 2,960 Intangible assets (goodwill) 2,807 2,656 Total liabilities 20,102 18,619 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 $3,052. a. Calculate McDonald’s free cash flow 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

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 (EBIT)	8,593
Interest expense	520

Pretax income	8,073
Taxes	2,620

Net income	5,453

BALANCE SHEET OF MCDONALD’S CORP., 2012
(Figures in $ millions)
Assets	2012		2011	Liabilities and Shareholders' equity	2012	2011
Current assets							Current liabilities
Cash and marketable securities		2,339			2,339		Debt due for repayment	—	376
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 equipment		24,680			22,838		Other long-term liabilities	3,060	2,960

Intangible assets (goodwill)		2,807			2,656		Total liabilities	20,102	18,619
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 $3,052.

a.	Calculate McDonald’s free cash flow 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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