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ses.aplia.com/at/servlet/quiz?ctx-vpandey-0050&quiz action takeQuiz&quiz_probGuid ONAPCOA801 le D Yahoo Welcome untitled folder Apple D iCloud fFacebook DTwitter D Wikipedia Financial Statements, Cash Flow, and Taxes Graded Assignment | Read Chapter 2 Back to Assignment Due Wednesday 09,05.18 Attempts: Do No Harm: /2 6. Net cash flow Aa A How much cash does the firm actually have? You are the CFO of ABC Corp. Y short-listed candidates. You've given the following information to the job applicants: ou are looking to hire a financial analyst, and you've given an assignment to tw The company reported net sales of $3,125 million. Assume that there were no noncash sales. y's total Operating costs (excluding depreciation and amortization) were 65% of the compan revenues. Depreciation and amortization charges were S% of total sales. Interest charges were 15% of earnings before interest and taxes (EBIT) with a tax rate of 40%. You've asked the candidates to give you a number that best represents the cash flow situation of the company Kurt submits a report stating that the firm has $634 million in cash available Jake submits a report stating that the firm has $478 mililion in cash MacBook ProExplanation / Answer
We need to calculate the amount of cash with the company, but before that let us calculate the EBIT.
Net sales = $3,125 mil
Operating costs = 65% of sales = 65% * $3,125 mil = $2,031.25 mil
Depreciation & Amortization = 5% of sales = 5% * $3,125 mil = $156.25 mil
EBIT = Net Sales - Operating Costs - Depreciation & Amortization = $937.5 mil
Interest expense = 15% of EBIT = $140.625 mil
Earnings before Tax = $937.5 mil - $140.625 mil = $796.875 mil
Net Income = EBT * (1 - Tax Rate) = 796.875 mil * (1 - 40%) = $478.125 mil
Now, depreciation & amortization is a non cash expense.
Cash flow = Net Income + Depreciation & Amortization = $478.125 mil + $156.25 mil = $634.375 mil
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