Question

The following are the financial statements for Trust Us Bank: Balance Sheet 12/31/95 12/31/96 Cash $305 270 Accounts receivable 275 290 Inventory 600 580 Current assets 1,180 1,140 Plant and equipment 1,700 1,940 Less: acc depr (500) (600) Net plant and equipment 1,200 1,340 Total assets $2,380 $2,480 Liabilities and Owners’ Equity Accounts payable $150 $200 Notes payable 125 0 Current liabilities 275 200 Bonds 500 500 Owners’ equity Common stock 165 305 Paid-in-capital 775 775 Retained earnings 665 700 Total owners’ equity 1,605 1,780 Total liabilities and owners’ equity $2,380 $2,480 Income Statement Sales (100% credit) $1,100 $1,330 Cost of goods sold 600 760 Gross profit 500 570 Operating expenses 20 30 Depreciation 160 200 Net operating income 320 340 Interest expense 64 57 Net income before taxes 256 283 Taxes 87 96 Net income $ 169 $ 187 Preferred dividends $ 100 $100 (a) Calculate the Free cash Flow from the Asset perspective [9] (b) Calculate the Free cash Flow from the Finance perspective [7] (c) Explain the implications of the results above to the investor [2] (d) What is the accounting basis on which Profit is calculated (explain)

Answer 1