Calculate free cash flow for 2014 for Monarch Textiles, Inc., based on the finan

Question

Calculate free cash flow for 2014 for Monarch Textiles, Inc., based on the financial information below. Assume that all current liabilities are non-interest-bearing liabilities and that no fixed assets were sold or disposed of during 2014 Income statement 2014 Selected Balance Sheet Items 2014 2013 2014 Sales 1,100 Current Assets 200 300 Cost of sales 700 Net fixed assets 200 400 Operating expenses 100 Depreciation 50 Current liabilities 180 200 Interest expense 50 Earnings before taxes 200 Tax 80 Net Income 120 Hints: Free Cash Flows = EBIT (1-Tax) + Depreciation – Capital Expenditure – Working capital investments Where: Capital expenditure = Net fixed assets in year t+1-Net fixed assets in year t + Depreciation in year t+1 Working capital investments = Net working capital in year t+1 – Net working capital in year t.

Explanation / Answer

2014 2013 Current assets= 300 Current assets= 200 Net fixed assets=400 Net fixed assets=200 Current liabilities=200 Current liabilities=180 Sales= 1100 Cost of sales= 700 Operating expenses= 100 Depreciation= 50 Interest expense= 50 Earnings before tax= 200 Tax=80 Net Income= 120 sales 1100 (cost of sales) -700 (operating expenses) -100 Depreciation -50 Interest Expense -50 earnings before tax 200 Tax -80 Net Income 120 Depreciation 50 Cash inflow from operations=120+50=170 Add: Increase in current assets= 300-200=100 less: Increase in current liabilities= 200-180 = (20) Add:Increase in fixed Assets=400-200=200 Free Cash flow for the year 2014= 170+100+200-20=450

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