Question

XP4-6 (similar to) Finding operating and free cash flows Consider the balance sheets and selected data from the income statement of Keith Corporation that follow a. Calculate the firm's net operating profit after taxes (NOPAT) for the year ended December 31, 2015 b. Calculate the firm's operating cash flow (OCF) for the year ended December 31, 2015 c. Calculate the firm's free cash flow (FCF) for the year ended December 31, 2015 d. Interpret, compare and contrast your cash flow estimate in parts (b) and (c). - X Data Table (Click on the icon located on the top-right corner of the data tables below in order to copy its contents into a spreadsheet.) Keith Corporation Balance Sheets December 31 2015 Assets 2014 $1,470 Cash $1,020 Marketable securities 1,800 1,160 Accounts receivable 1,990 1,810 2,870 2,770 Inventories $8,130 Total current assets $6,760 Gross fixed assets $29,550 $28,050 Less: Accumulated depreciation 14,680 13,050 Net fixed assets $15,000 $14,870 $23,000 Total assets $21,760 Liabilities and Stockholders' Equity Accounts payable Notes payable $1,590 $1,450 2,770 2,200 Accruals 230 330 $3,980 Total current liabilities $4,590 Long-term debt $4,970 $4,880 $8,860 Total liabilities $9,560 $10,050 Common stock $10,050 Retained earnings Total stockholders' equity Total liabilities and stockholders equity 3,390 2,850 $13,440 $12,900 $23,000 $21,760 Income Statement Data (2015) Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Net profits after taxes $1,630 2,690 367 1,394 Tax rate 40%

Answer 1

Solution :-

(a taxes Net Operating profit after EBIT (1 tax rate) $2690 (1 - 0.40) = $2690 (0.60) = $1614 Taxes rate (EBIT - Interest expense) Tax = ($2690 - $367) 40% = ($2323) 40% = $929 رشرام/N Operating Cash Flow (OCF) - EBIT - Taxes + Depreciation - $2690 - $929 + $1630 - $ 3391

(c) Increase in fixed asset investment = Gross fixed assets - Gross fixed (2015) (2014) assets ! = $29550 - $28050 = $1500 Increase in Current assets - Total current assets – Total current - (2015) assets/2014) - $8.30 – $6760 = $1370 Net increase in working Capital - Increase in Current – (Accounts - Accounts assets (Payable Payable ) (2015) (2014 = = $1370 - ($1590 - $1450) $1370 - $140 = $1230

Free Cash flow - Increase in fixed assets investment - OCF – Net increase in working Capital - $3391 - $ 1500 - $1230 = $661 The firm has positive Operating Cash flow and the free cash. flow indicates that operating Cash flow is sufficient to cover all operating expenses of the company as well as its Current and fixed assets investment.