Question

Free Cash Flow estimation. Fill in the blanks and complete the formula. Do not use thousand separators. (e.g., 2000) Pro Forma Statement (in 000s) Item 2018 Actual 2019 Pro Forma unit sales 400 800 unit price 5 5 unit variable cost of goods sold 1 1 Sales 2000 COGS (fixed) 500 COGS (variable) 400 Gross profit 1100 Selling and shipping expenses (variable) 100 Gen. admin. expenses (fixed) 200 Depreciation (fixed) 100 Lease expense (fixed) 40 total operating expenses 440 Operating profit (EBIT) 660 Suppose the tax rate (T) is 25%, and the required fixed capital investment is 200 and the required working capital investment is 40. Free cash flow (FCF) = EBIT(1-T) - required fixed capital investment - required working capital investment. FCF = (1 - %) - - =

Answer 1

Pro Forma Statement
Item	working	2018	2019
unit sales		400	800
unit price		5	5
unit variable cost of goods sold		1	1
sales	( unit sales * unit price)	2000	4000
COGS ( fixed)		-500	-500
COGS ( variable)	(400/400 * 800)	-400	-800
Gross Profit	( Sales- COGS, both)	1100	2700
Selling and shipping expenses (variable)	next year shipping = 100/400 *800	-100	-200
Gen. admin. expenses (fixed)	fixed expenses remain same	-200	-200
Depreciation (fixed)		-100	-100
Lease expense (fixed)		-40	-40
total operating expenses		-440	-540
Operating profit	Gross profit- operating expense	660	2160
tax	operating profit * 25%	-165	-540
Profit after tax	operating profit - tax	495	1620

required fixed capital investment		200
required working capital investment		40
total investment needed		240

Now, free cash flow	2018	2019
EBIT	660	2160
tax	-165	-540
Profit after tax	495	1620
Free cash flow = profit after tax- investment required)	255	1380