Practice Exercise 2 Information for two companies in the same industry, Flounder

Question

Practice Exercise 2

Information for two companies in the same industry, Flounder Corp. and Oriole Company, is presented here.

Flounder Corp.

Oriole Company

Compute free cash flow for both companies and compare. (Show a negative free cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Flounder Corp.

Oriole Company

Flounder Corp.

Oriole Company

Net cash provided by operating activities $ 86,710 $97,500 Average current liabilities 45,000 101,500 Net income 215,600 215,600 Capital expenditures 38,570 74,520 Dividends paid 5,120 9,450

Explanation / Answer

Free Cash Flow :-

= Net Cash Flow from Operating Activities - Capital Expenditure - Divided

Free Cash Flow of Flounder Corp. :-

= $86710 - $38570 - $5120

= $43020

Free Cash Flow of Oriole Company :-

= $97500 - $74520 - $9450

= $13530

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