What is the cash flow of the firm, or CF(A), for 2018?
Owens Company |
|
2018 Income Statement |
|
Net sales |
90,000.00 |
Cost of goods sold |
55,800.00 |
Selling, general, and administrative expenses |
4,500.00 |
Depreciation |
6,300.00 |
Earnings before interest and taxes |
23,400.00 |
Interest |
2,484.00 |
Pretax income |
20,916.00 |
Taxes |
5229.00 |
Net income |
15,687.00 |
Owens Company |
||||||||
2017 and 2018 Balance Sheets |
||||||||
2017 |
2018 |
2017 |
2018 |
|||||
Cash |
9,000 |
9,900 |
Accounts payable |
15,120 |
16,632 |
|||
Accounts receivable |
7,200 |
7,920 |
Accrued expenses |
6,480 |
7,128 |
|||
Inventory |
10,800 |
11,880 |
Current liabilities |
21,600 |
23,760 |
|||
Current assets |
27,000 |
29,700 |
Long-term debt |
43,200 |
49,680 |
|||
Net fixed assets |
81,000 |
94,500 |
Owners' equity |
43,200 |
50,760 |
|||
Total assets |
108,000 |
124,200 |
Total liabilities and equity |
108,000 |
124,200 |
$3,013.50 |
||
$3,412.40 |
||
$3,855.60 |
||
$4,131.00 |
||
$4,582.00 |
Cash flow from firm or Free Cash flow from Firm = EBIT -Taxes + Depreciation - Change in Net Working Capital - Net Capital Spending
i) Change in Net Working Capital = Net Working Capital of 2018 - Net Working Capital of 2017
Net Working Capital = Current Assets - Current Liabilities
Change in Net Working Capital of 2018 = $29,700 - $23,760 = $5940
Change in Net Working Capital of 2017 = $27,000 - $21,600 = $5400
Change in Net Working Capital = $5940 - $5400 = $540
- Net Capital Spending of 2018 = Net Fixed assets of 2018 + Depreciation of 2018 - Net Fixed assets of 2017
Net Capital Spending of 2018 = $94,500 + $6300 - $81,000
Net Capital Spending of 2018 = $19,800
Cash Flow from Firm of 2018 = $23,400 - $5229 + $6300 - $540 - $19,800
Cash Flow from Firm of 2018 = $4131
option D
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