# Last year Rattner Robotics had \$5 million in operating income (EBIT). The company had net depreciation expense of \$1 million and interest expense of \$1 million; its corporate tax rate was 40 percent. The company has \$14 million in current assets and \$4 million in non-interest-bearing current liabilities; it has \$15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10 percent. Assume that Rattner’s only non-cash item was depreciation.

a. What was the company’s net income for the year?
b. What was the company’s net cash flow?
c. What was the company’s net operating profit after taxes (NOPAT)?
d. What was the company’s operating cash flow?
e.If operating capital in the previous year was \$24 million what was the company’s free cash flow (FCF) for the year?
f. What was the company’s Economic Value Added (EVA)

Last year Rattner Robotics had \$5 million in operating income (EBIT). The company had net depreciation expense of \$1 million and interest expense of \$1 million; its corporate tax rate was 40 percent. The company has \$14 million in current assets and \$4 million in non-interest-bearing current liabilities; it has \$15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10 percent. Assume that Rattner’s only non-cash item was depreciation.
If operating capital in the previous year was \$24 million what was the company’s free cash flow (FCF) for the year?
f. What was the company’s Economic Value Added (EVA)

## To calculate the values, we can use the following formulas:

a. Net Income = Operating Income - Depreciation Expense - Interest Expense - Taxes
b. Net Cash Flow = Net Income + Depreciation Expense
c. Net Operating Profit After Taxes (NOPAT) = Operating Income * (1 - Tax Rate)
d. Operating Cash Flow = Net Operating Profit After Taxes (NOPAT) + Depreciation Expense
e. Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures
f. Economic Value Added (EVA) = Net Operating Profit After Taxes (NOPAT) - (Cost of Capital * Operating Capital)

Now, let's calculate each value:

a. Net Income = \$5 million - \$1 million (depreciation) - \$1 million (interest) - (\$5 million - \$1 million - \$1 million) * 0.4
Net Income = \$5 million - \$1 million - \$1 million - \$4 million * 0.4
Net Income = \$2 million

b. Net Cash Flow = \$2 million + \$1 million (depreciation)
Net Cash Flow = \$3 million

c. Net Operating Profit After Taxes (NOPAT) = \$5 million * (1 - 0.4)
Net Operating Profit After Taxes (NOPAT) = \$5 million * 0.6
Net Operating Profit After Taxes (NOPAT) = \$3 million

d. Operating Cash Flow = \$3 million + \$1 million (depreciation)
Operating Cash Flow = \$4 million

e. Free Cash Flow (FCF) = \$4 million - Change in Operating Capital
Since the question doesn't provide the change in operating capital, we can't calculate the exact Free Cash Flow without this information.

f. Economic Value Added (EVA) = Net Operating Profit After Taxes (NOPAT) - (Cost of Capital * Operating Capital)
Since the question doesn't provide the operating capital, we can't calculate the exact Economic Value Added (EVA) without this information.

## To answer these questions, we will use the provided information to calculate the relevant financial metrics:

a. Net income can be calculated by subtracting interest expense and taxes from operating income. In this case, net income = operating income - interest expense - (1 - tax rate).

b. Net cash flow can be calculated by adding back non-cash expenses such as depreciation to net income. In this case, net cash flow = net income + depreciation.

c. Net operating profit after taxes (NOPAT) is the operating income minus taxes. In this case, NOPAT = operating income * (1 - tax rate).

d. Operating cash flow can be calculated by adding back non-cash expenses such as depreciation to NOPAT. In this case, operating cash flow = NOPAT + depreciation.

e. Free cash flow (FCF) is the operating cash flow minus the change in operating capital. In this case, FCF = operating cash flow - (operating capital in the current year - operating capital in the previous year).

f. Economic Value Added (EVA) can be calculated by subtracting the after-tax cost of capital from NOPAT and multiplying it by the operating capital employed. In this case, EVA = (NOPAT - (after-tax cost of capital * operating capital employed)).

Let's calculate the values:

a. Net income = \$5 million - \$1 million - (\$5 million * 0.4) = \$1 million.

b. Net cash flow = \$1 million + \$1 million = \$2 million.

c. NOPAT = \$5 million * (1 - 0.4) = \$3 million.

d. Operating cash flow = \$3 million + \$1 million = \$4 million.

e. FCF = \$4 million - (\$24 million - \$24 million) = \$4 million.

f. EVA = (\$3 million - (0.1 * \$24 million)) * \$24 million = \$720,000.

Therefore, the company's free cash flow (FCF) for the year is \$4 million, and the economic value added (EVA) is \$720,000.