Fiance 6 Haliburton. Inc. reported the following financial information for 2013:

Question

Fiance 6

Haliburton. Inc. reported the following financial information for 2013: The firm expects revenues, costs, expenses (excluding depreciation), and working capital to grow at 10% per year for the next three years. It also expects to invest $20 million per year in fixed assets, which includes replacing worn out equipment and purchasing enough new equipment to support the projected growth and maintain a competitive position. Assume depreciation is 5% of the gross fixed asset account, the tax rate is 40%, and that Slattery has no debt and therefore pays no interest. a Make a rough projection of cash flows for 2014,2015 and 2016 assuming no new debt or equity is raised. Simply compute an income statement in each year, add depreciation and subtract increases in working capital and fixed asset purchases. Don't assume any new debt or equity. Are your projections free cash flows? What do your projections imply for Slattery' s owners managers?

Explanation / Answer

a.

b. Yes, they are free cash flow projections

c. For Slattery's managers, it is a cause of concern as they are not generating free cash flows. Their free cash flows are negative implying that Slattery is not generating surplus cash to meet its investment requirements.

2013 2014 2015 2016 Fixed assets 100 120 140 160 Depreciation @5% 5 6 7 8 Working capital 40 44 48 53 Change in working capital 4 4 5

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