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XYZ Ltd. has the following data in 2017 statements: Net operating income 7,000 tax 15% Net...

XYZ Ltd. has the following data in 2017 statements:

Net operating income

7,000

tax

15%

Net PPE (2018)

15,000

NOWC (2018)

20,000

Dep 2019

1,200

Net PPE (2019)

18,000

NOWC (2019)

22,000

What is the free cash flow for 2017?

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Answer #1

Free cash Flow = Net operating income*(1-Tax rate) + Depreciation - Change in Net Operating Working Capital - Net Capital Spending

where, Change in Net Operating Working Capital(NOWC) = Net Operating Working Capital of 2019 - Net Operating Working Capital of 2018

Change in Net Operating Working Capital(NOWC) = $22,000 - $20,000 = $2000

- Net Capital Spending of 2019 = Net Plant & Equipment of 2019 + depreciation of 2019 - Net Plant & Equipment of 2018

Net Capital Spending of 2019 = $18,000 + $1200 - $15,000 = $4200

Free cash Flow = $7000*(1-15%) + $1200 - $2000 - $4200

Free cash Flow = $950

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