Question

What is the cash flow of the firm, or CF(A), for 2016?

Laidlaw, Inc.
2016 Income Statement
Net sales	30,180.00
Cost of goods sold	16,240.00
Selling, general, and administrative expenses	5,410.00
Depreciation	1,260.00
Earnings before interest and taxes	7,270.00
Interest	380.00
Pretax income	6,890.00
Taxes	1722.50
Net income	5,167.50

Laidlaw, Inc.
2015 and 2016 Balance Sheets
	2015		2016			2015		2016
Cash	1,024		1,531		Accounts payable	6,225		6,709
Accounts receivable	3,106		3,420		Accrued expenses	2,200		1,625
Inventory	5,210		5,750		Current liabilities	8,425		8,334
Current assets	9,340		10,701		Long-term debt	17,986		21,089
Net fixed assets	32,415		35,200		Owners' equity	15,344		16,478
Total assets	41,755		45,901		Total liabilities and equity	41,755		45,901

		$1,730.00
		$1,620.00
		$1,550.50
		$1,482.50
		$1,310.50

Answer 1

FCFF = earnings before interest and taxes (EBIT) x (1 - tax rate) + depreciation - Capital Expenditure - Change in Working Capital

Tax rate = Amount of Tax/ Pre tax income = 1722.5/6890 = 0.25 i.e 25%

Capital Expenditure = Change in Net Fixed Assets (2016-2015) = 35,200-32,415 = 2786

Working Capital = Current Assets - Current Liabilities

WC(2016) = 10,701-8,334= 2367

WC(2015) = 9,340- 8,425=915

CHANGE IN WC = 2016-2015 = 2367-915 = 1452

FCFF = earnings before interest and taxes (EBIT) x (1 - tax rate) + depreciation - Capital Expenditure - Change in Working Capital

FCFF= 7,270*(1-0.25) + 1,260 - 2786 - 1452

FCFF = 2474.50