Question

PAP Inc.’s financial statements are as follows: PAP Inc. Balance sheet For the Period ended 2016 and 2017 ($000) ASSETS 2016 2017 Cash $ 200 $ 150 Accounts receivable 450 425 Inventory 550 625 CURRENT ASSETS $ 1,200 $ 1,200 Plant & equipment $2,200 $2,600 Less Accumulated Depreciation (1,000) (1,200) Net Plant & equipment $1,200 $1,400 Total Assets $2,400 $2,600 LIABILITIES & Equity Accounts payable $ 200 $150 Notes Payable current (9%) 0 150 CURRENT LIABILITIES $ 200 $300 Bonds $ 600 $600 Owner’s Equity Common stock $900 $900 Retained earnings 700 800 Total Owner’s Equity $ 1,600 $1,700 Total liabilities & Equity $2,400 $2,600 PAP Inc. Income Statements (000’s) 2016 2017 Sales $1,200 $1,450 COGS 700 850 Gross Profit $500 $600 Selling, general, ADM Expenses 30 40 Depreciation 220 200 Operating $ 250 $ 360 2 Income Interest expense 50 64 EBT $200 $ 296 Taxes (40 %) 80 118 Net income $120 $178 (10 pts) Using the financial statements above, Calculate PAP Inc.’s free cash flows from operation for year ending in 2017? (10 pts) What are the uses of PAP’s FCFs?

Answer 1

Cash flows from operating activities
Net income for the year				178
Adjustment required
Depreciation				200
Decrease in Accounts receivable				25
Increase in invesntory				-75
Decrease in Accounts payable				-50
Increase in note payable				150
Net cash provided from Operating activities					428
Less: Capital expenditure in purchase of equipment					-400
Free cash flows					28
FCF hs been used in paying dividend along with the beginning cash balance partly used.