Question

A company has the following income statement and balance sheet: INCOME STATEMENT Sales $1,000 Costs 600...

A company has the following income statement and balance sheet:

INCOME STATEMENT

Sales $1,000

Costs 600

Depreciation 240

EBIT $ 160

Interest expenses 60

EBT $ 100

Taxes (40%) 40

Net income $ 60

BALANCE SHEET

Cash $ 20

Accounts payable $ 30 Short-term investments 30 Accruals 50 Accounts receivable 20 Notes payable 10 Inventory 60 Current liabilities 90 Current assets 130 Long-term debt 70 Gross fixed assets 140 Common stock 30 Accumulated deprec. 40 Retained earnings 40 Net fixed assets 100 Total common equity 70 Total assets $230 Total liab. & equity $230

If the Total Operating Capital FOR THE LAST YEAR WAS $120, what is the current year's Free Cash Flow?

a.

$90

b.

$105

c.

$70

d.

$96

Homework Answers

Answer #1

- Total Operating Capital for Current Year = Current Assets + Net fixed Assets - Accounts payable - Accruals

= $130 + 100 - $30 - 50

Total Operating Capital for Current Year = $150

Total Operating Capital for Last Year = $120

Change in Operating Capital = Total Operating Capital for Current Year - Total Operating Capital for Last Year

Change in Operating Capital = $150 - $120 = $30

- Current Years' Free cash flow(FCF) = EBIT - taxes - Change in Operating Capital

FCF = $160 - $40 - $30

FCF = $90

So, the current year's Free Cash Flow is $90

Option A

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