Question

The 2013 income statement of Southern Products, Inc., showed $2.3 million EBIT, $340,000 depreciation, $800,000 interest expenses, and its tax rate is 34%. If the firm's net capital spending for 2013 was $620,000, and the firm increased its net working capital investment by $70,000, find the firm's 2013 cash flow from assets (CFFA). Do not include the $ sign or comma, and round it to a whole dollar, e.g., 2345 (for $2,345).

Answer 1

Firm’s Cash Flow from Assets (CFFA) = $1,168,000

Firm’s Cash Flow from Assets (CFFA) = Operating cash flow - Capital Spending - Additions to Net Working Changes

Operating cash flow = NOPAT + Depreciation

= $1,518,000 + 340,000

= $1,858,000

*NOPAT = EBIT(1 – Tax rate) = $2,300,000 (1 – 0.34) = $1,518,000

Firm’s Cash Flow from Assets (CFFA)

= Operating cash flow - Capital Spending - Additions to Net Working Changes

= $1,858,000 – 620,000 – 70,000

= $1,168,000