Calculate free cash flow for 2014 based on the financial information below. Assu
ID: 2754305 • Letter: C
Question
Calculate free cash flow for 2014 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 in 2014.
Income Statement
Selected Balance sheet items
2014
2013
2014
Sales
1100
Current Assets
300
400
Cost of sales
700
Net Fixed assets
100
200
operating Expenses
100
Depreciation
50
Current Liabilities
200
280
Interest expense
50
Earnings before tax
200
Tax
80
Net Income
120
Income Statement
Selected Balance sheet items
2014
2013
2014
Sales
1100
Current Assets
300
400
Cost of sales
700
Net Fixed assets
100
200
operating Expenses
100
Depreciation
50
Current Liabilities
200
280
Interest expense
50
Earnings before tax
200
Tax
80
Net Income
120
Explanation / Answer
Answer: Calculation of the free cash flow for 2014 :
Free cash flow is the sum of the net operating profit after taxes (NOPAT).
FCF = NOPAT – Net investment in operating capital
NOPAT = EBIT (1-Tax rate)
NOPAT for 2014 = EBIT for 2014 (1- 0.40)
=$250*0.60=
=$150
Free cash flow=NOPAT+Depreciation and amortization- Changes in Working Capital- Capital expenditure (CAPEX)
=$150+$50-(100-80)-(100)
=$80
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