Problem #1 Free Cash Flow (6 points) Show all your work for full and partial cre
ID: 2814700 • Letter: P
Question
Problem #1 Free Cash Flow (6 points) Show all your work for full and partial credit. Considering the following information: EBIT- S200M Tax Rate 30% Depreciation expense S5M Gross fixed assets increased $20M Current assets increased SIOM Spontaneous liabilities increased S2M A. Calculate the company's operating cash flow: B. Calculate the company's investment in operating capital: C. Calculate the company's free cash flow: Problem #2 (11 points) Specify on which of the four major financial statements you would find the following: A. Cash B. Cost of Goods Sold C. Net Cash Flow from Investing D. Rent Expense E. Decrease in Accounts Payable F. Notes Payable G. Additional Paid in Capital Specify on which two of the four major financial statements you would find the following and H. Depreciation Expe SRE SCF and I. Total Cash DividExplanation / Answer
Answer to Problem 1:
Answer a.
Operating Cash Flow = EBIT * (1 - tax) + Depreciation
Operating Cash Flow = $200 million * (1 - 0.30) + $5 million
Operating Cash Flow = $140 million + $5 million
Operating Cash Flow = $145 million
Answer b.
Change in Net Working Capital = Increase in Current Assets - Increase in Current Liabilities
Change in Net Working Capital = $10 million - $2 million
Change in Net Working Capital = $8 million
Investment in Operating Capital = Change in Gross Fixed Assets + Change in Net Working Capital
Investment in Operating Capital = $20 million + $8 million
Investment in Operating Capital = $28 million
Answer c.
Free Cash Flow = Operating Cash Flow - Investment in Operating Capital
Free Cash Flow = $145 million - $28 million
Free Cash Flow = $117 million
Answer to Problem 2:
Cash : Balance Sheet
Cost of Goods Sold : Income Statement
Net Cash Flow from Investing : Statement of Cash Flows
Rent Expense : Income Statement
Decrease in Accounts Payable : Statement of Cash Flows
Notes Payable : Balance Sheet
Additional Paid-in Capital : Balance Sheet
Depreciation Expense : Income Statement and Statement of Cash Flows (Indirect Method)
Total Cash Dividends : Statement of Retained Earnings and Statement of Cash Flows (Indirect Method)
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