Question

IncorrectQuestion 17

0 / 1 pts

Use the following information/data to answer the next two questions.

Marsh
Balance Sheet	2005	2004		2005	2004
Cash	1,700	200	Accounts Payables	900	850
Accounts Receivable	1,400	1,000	Short-term Debt	150	100
Inventory	1800	1,500	Other Current Liabilities	400	300
Total Current Assets	4,900	2,700	Total Current Liabilities	1,450	1,250
Net Fixed Assets	9,500	10,500	Long-term Debt	6,000	5,750
Non-Operating Assets	1100	1,300	Non-Operating Liabilities	2,250	2,500
			Total Equity	5,800	5,000
Total Assets	15,500	14,500	Total Equity and Debt	15,500	14,500
Tax Rate	35%
Income Statement
Sales	12,000
COGS	8,500
SG&A	700
Depreciation	1000
EBIT	1,800
Interest Expense	300
Taxes	525
Net Income	975
Dividends	300

What is free cash flow (FCF) for Marsh?

  

less than $1450

  

between $1500 and $1550

  

between $1600 and $1650

  

between $1450 and $1500

Answer 1

Free Cash flow(FCF)=Net Income+Non cash expense-Increase in working capital-capital expenditure

In the given case non cash expense is only Deprecaition i.e 1,000

Net Increase in working capital=Increase in current asset-Increase in Current liablities

Increase in Accounts Receivable=400

Increase in Inventory=300

Less:Increase in Accounts Payables=50

Increase in Short-term Debt=50

Thus,Net Increase in working capital=600

Capital Expenditure=Opening Fixed assets-Depreciation-Closing fixed assets

=10500-1000-9500

=0

Thus FCF,

=975+1,000-600-0

=1,375

Thus FCF is $1375,that is less than $1450,therefore correct option is 'Less than $1450.

Non operating assets are not icluded in calculation of FCF.