PROBLEM 6-13 Given (refer to problem 6-7): Balance Sheet 2015 Cash and Marketabl

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PROBLEM 6-13 Given (refer to problem 6-7): Balance Sheet 2015 Cash and Marketable Securities $            500 Accounts Receivable             6,000 Inventories             9,500      Current Assets $       16,000 Net Property Plant & Equipment           17,000      Total $       33,000 Accounts Payable $         7,200 Short-term Debt             6,800      Current Liabilities $       14,000 Long-term Debt             7,000      Total Liabilities $       21,000      Total Owners' Equity           12,000      Total Liabilities and Owners' Equity $       33,000 Income Statement 2015 Revenues $       30,000 100.00% Cost of Goods Sold          (20,000) Gross Profit $       10,000 Operating Expenses           (8,000) Net Operating income $         2,000 Interest Expense              (900) Earnings before Taxes $         1,100 Taxes              (400) Net Income $            700 Projected growth rate in revenues 20% Tax rate 40% Given (refer to problem 6-12): Pro forma Income Statement 2016 Sales $              -   Cost of Goods Sold $              -   Gross Profit $              -   Operating Expenses $              -   Net Operating income $              -   Interest Expense $              -   Earnings before Taxes $              -   Taxes $              -   Net Income $              -   Balance Sheet 2016 Cash and Marketable Securities $              -   Accounts Receivable $              -   Inventories $              -        Current Assets $              -   Net Property Plant & Equipment $              -        Total $              -   Accounts Payable $              -   Short-term Debt $              -        Current Liabilities $              -   Long-term Debt $              -        Total Liabilities $              -        Total Owners' Equity $              -        Total Liabilities and Owners' Equity $              -   Additional Short-term Debt Needed $              -   Solution: Estimated Free Cash Flow 2016 EBIT -Taxes NOPAT + Depreciation and Amortization - Increase in Operating Net Working Capital - CapEx = Free Cash Flow PROBLEM 6-13 Given (refer to problem 6-7): Balance Sheet 2015 Cash and Marketable Securities $            500 Accounts Receivable             6,000 Inventories             9,500      Current Assets $       16,000 Net Property Plant & Equipment           17,000      Total $       33,000 Accounts Payable $         7,200 Short-term Debt             6,800      Current Liabilities $       14,000 Long-term Debt             7,000      Total Liabilities $       21,000      Total Owners' Equity           12,000      Total Liabilities and Owners' Equity $       33,000 Income Statement 2015 Revenues $       30,000 100.00% Cost of Goods Sold          (20,000) Gross Profit $       10,000 Operating Expenses           (8,000) Net Operating income $         2,000 Interest Expense              (900) Earnings before Taxes $         1,100 Taxes              (400) Net Income $            700 Projected growth rate in revenues 20% Tax rate 40% Given (refer to problem 6-12): Pro forma Income Statement 2016 Sales $              -   Cost of Goods Sold $              -   Gross Profit $              -   Operating Expenses $              -   Net Operating income $              -   Interest Expense $              -   Earnings before Taxes $              -   Taxes $              -   Net Income $              -   Balance Sheet 2016 Cash and Marketable Securities $              -   Accounts Receivable $              -   Inventories $              -        Current Assets $              -   Net Property Plant & Equipment $              -        Total $              -   Accounts Payable $              -   Short-term Debt $              -        Current Liabilities $              -   Long-term Debt $              -        Total Liabilities $              -        Total Owners' Equity $              -        Total Liabilities and Owners' Equity $              -   Additional Short-term Debt Needed $              -   Solution: Estimated Free Cash Flow 2016 EBIT -Taxes NOPAT + Depreciation and Amortization - Increase in Operating Net Working Capital - CapEx = Free Cash Flow

Explanation / Answer

Pro forma Income Statement 2016 % of Sales Sales 30000/100*120 36000 100 Cost of Goods Sold20000/30000*36000 -24000 -66.67 Gross Profit 12000 33.33 Operating Expenses8000/30000*36000 -9600 -26.67 Net Operating income 2400 6.67 Interest Expense900/30000*36000 -1080 -3.00 Earnings before Taxes 1320 3.67 Taxes 40%*EBIT 528 1.47 Net Income 792 2.20 Balance Sheet 2016 Cash and Marketable Securities500/30000*36000 600 Accounts Receivable6000/30000*36000 7200 Inventories9500/30000*36000 11400      Current Assets 19200 Net Property Plant & Equipment17000/30000*36000 20400      Total 39600 Accounts Payable7200/30000*36000 8640 Short-term Debt6800/30000*36000 8160      Current Liabilities 16800 Long-term Debt7000/30000*36000 8400      Total Liabilities 25200      Total Owners' Equity12000+792 12792      Total Liabilities and Owners' Equity 37992 Additional Short-term Debt Needed=39600-37992 1608 Estimated Free Cash Flow 2016 EBIT 1320 -Taxes 528 NOPAT 792 + Depreciation and Amortization 0 - Increase in Operating Net Working Capital 400 - CapEx 3400        = Free Cash Flow -3008

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