inding operating and free cash flows Consider the following balance sheets and s
ID: 2654540 • Letter: I
Question
inding operating and free cash flows Consider the following balance sheets and
selected data from the income statement of Keith Corporation.
December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $29,500 $28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $14,800 $15,000
Total assets $23,000 $21,800
Liabilities and stockholders’ equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $10,000 $10,000
Retained earnings 3,400 2,800
Total stockholders’ equity $13,400 $12,800
Total liabilities and stockholders’ equity $23,000 $21,800
Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate 40%
Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2015,
Explanation / Answer
Answer
Cash flow statement for year ended December 31, 2015
Figures in $
Particulars
Amount
Increase in retained earnings (3400-2800)
600
Depreciation
1600
Change in working capital
Accounts receivables (1800-2000)
-200
Inventory (2800-2900)
-100
Accounts payable (1600-1500)
100
Notes payable (2800-2200)
600
Accruals (200-300)
-100
Cash flow for operating activities
A
2500
Fixed assets purchase (28100-29500)
-1400
Cash flow form investing activities
B
-1400
Cash flow from financing activity
C
0
Net cash flow for the year
A+B+C
1100
Opening cash & marketable securities
D
2200
Closing cash & marketable securities
E
3300
Increase in cash flow
(E-D)
1100
Cash flow statement for year ended December 31, 2015
Figures in $
Particulars
Amount
Increase in retained earnings (3400-2800)
600
Depreciation
1600
Change in working capital
Accounts receivables (1800-2000)
-200
Inventory (2800-2900)
-100
Accounts payable (1600-1500)
100
Notes payable (2800-2200)
600
Accruals (200-300)
-100
Cash flow for operating activities
A
2500
Fixed assets purchase (28100-29500)
-1400
Cash flow form investing activities
B
-1400
Cash flow from financing activity
C
0
Net cash flow for the year
A+B+C
1100
Opening cash & marketable securities
D
2200
Closing cash & marketable securities
E
3300
Increase in cash flow
(E-D)
1100
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