Question

Topic 4: Accounting & Financial Ratios 1. Income Statements, Balance Sheets, and Free Cash Flow You are given the following information about the great Viking Corporati (VC). . In 2015 VC bought a ship-building factory for $10,000 which is bei depreciated in a straight line over ten years. • The marginal tax rate is 21%. Income Statement Year Sales Cost of goods sold SG&A cost 2017 2,000 600 200 2018 2,500 500 150 Balance Sheet (end of year) Year Accounts Receivable Accounts Payable Inventory 2017 400 300 0 2018 350 400 200 (a) Calculate the Free Cash Flow in 2018.

Answer 1

Computation of the Free Cash Flow (FCF): Free Cash Flow = Cash Flow from Operations - Cash Flow from Capital Expenditure Free Cash Flow = Net Income + Non-Cash Expenses +/- Change in Working Capital - Cash Flow from Capital Expenditure 10,000 Calculation of Depreciation : Cost of Asset Salvage Value Depreciable Value Useful Life (In Years) Depreciation p.a to sto sto 10,000 10 1,000 Calculation of Net Income : Particulars Sales Less : Cost of goods sold Gross Profit Less : SG & A Less : Depreciation Profit before Tax Less : Tax Expense Net Income of oth so to sto 2018 2,500 500 2,000 150 1,000 850 179 $ 850 * 21%] 672 2018 672 to $ 1,000 Calculation of Free Cash Flow : Particulars Net Income Add: Non-Cash Expense - Depreciation Add / Less : Changes in Working Capital - Decrease in Accounts Receivables - Increase in Accounts Payables - Increase in Inventories Cash Flow from Operations o o o o 50 100 -200 1,622 Capital Expenditure $ - Free Cash Flow $ 1,622