FREE CASH FLOWS. Dick's Sporting Goods is a chain of full-line sporting goods retail stores offering a broad assortment of brand name sporting goods equipment, apparel, and footwear. Dick's Sporting Goods had its initial public offer- ing of shares in fiscal 2003. Since then, Dick's Sporting Goods has grown its chain of retail stores rapidly and has acquired several other chains of retail sporting goods stores, including Golf Galaxy and Chick's Sporting Goods in the fiscal year ending in 2008. As of the end of the fiscal year ending in 2009, Dick's Sporting Goods operated 409 stores in 40 states of the United States. Exhibit 12.12 presents information from the statement of cash flows and income statement for Dick's Sporting Goods for the fiscal years ending in 2007 through 2009. Dick's Sporting Goods requires all of its cash and cash equivalents for operating li- quidity and reports no interest income on the income statement. The average income tax rate for Dick's Sporting Goods during 2007 through 2009 is 40 percent.

Required:

a. Beginning with cash flows from operating activities, calculate free cash flows to all debt and equity capital stakeholders for Dick's Sporting Goods for fiscal years end- ing in 2009, 2008, and 2007.

b. Beginning with cash flows from operating activities, calculate free cash flows for common equity shareholders for Dick's Sporting Goods for fiscal years ending in 2009, 2008, and 2007.

c. Reconcile the amounts of free cash flows for common equity shareholders for Dick's Sporting Goods for fiscal years ending in 2009, 2008, and 2007 with Dick's Sporting Goods' sources of cash flow from equity shareholders.

d. Why do the free cash flows to all debt and equity capital stakeholders for Dick's Sporting Goods change so much from 2007 through 2009? In each of these three years, why do the free cash flows to all debt and equity capital stakeholders differ so much from the free cash flows to common equity shareholders?

e. In each of these three years, Dick's Sporting Goods produces negative free cash flows for common shareholders. Does that imply that Dick's Sporting Goods is destroying the value of common equity? Explain.

Text Book: Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective By James Wahlen, Stephen Baginski, Mark Bradshaw.