You have compiled the following information on Winslow, Inc.: 2016 2017 Assets C
ID: 1171011 • Letter: Y
Question
You have compiled the following information on Winslow, Inc.:
2016
2017
Assets
Cash
$
298
$
306
Accounts receivable
3,006
3,422
Inventory
5,210
5,650
Net fixed assets
32,780
36,400
Total assets
$
41,294
$
45,778
Liabilities and Equity
Accounts payable
$
6,219
$
6,184
Other current liabilities
1,880
1,625
Long-term debt
17,951
21,991
Stockholders’ equity
15,244
15,978
Total liabilities and equity
$
41,294
$
45,778
Sales
$
11,418
Cost of goods sold
6,320
General and administrative
2,419
Depreciation
967
EBIT
$
1,712
Interest
230
EBT
$
1,482
Taxes
519
Net income
$
963
What is the cash flow of the firm, or CF(A), for 2017?
2016
2017
Assets
Cash
$
298
$
306
Accounts receivable
3,006
3,422
Inventory
5,210
5,650
Net fixed assets
32,780
36,400
Total assets
$
41,294
$
45,778
Liabilities and Equity
Accounts payable
$
6,219
$
6,184
Other current liabilities
1,880
1,625
Long-term debt
17,951
21,991
Stockholders’ equity
15,244
15,978
Total liabilities and equity
$
41,294
$
45,778
Sales
$
11,418
Cost of goods sold
6,320
General and administrative
2,419
Depreciation
967
EBIT
$
1,712
Interest
230
EBT
$
1,482
Taxes
519
Net income
$
963
Explanation / Answer
Cash flow of the firm, or CF(A) = –$3,581[ Negative ]
Cash flow of the firm, or CF(A) = Operating Cash Flow – Additional Capital Expenditure for fixed assets - Change in net working capital
Operating cash flow = Net Income + Depreciation – Tax Expenses
= $1,712 + $967 – $519
= $2,160
Change in net working capital = [ $306 + 3422 + 5650 – 6184 – 1625 ] – [ $298 + 3006 + 5210 – 6219 – 1880 ]
= $1,154
Additional Capital Expenditure for fixed assets = Ending Balance – [ Opening Balance + Depreciation ]
= $36400 – [ 32780 + 967 ]
= $4,587
Therefore, Cash flow of the firm, or CF(A)
= $ 2,160 – 4,587 – 1,154
= –$3,581[ Negative ]
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