Question

What was the free cash flow in 2017 for FIN 300 Inc.? Please show work.

Balance Sheet: 12/31/17 Assets Cash and Marketable Securities Accounts Receivable Inventories Total Current Assets Net plant and equipment TOTAL ASSETS 2017 130 4875 7995 13000 13000 26000 2016 1040 4095 5395 10530 11310 21840 Liabilities and Equity Accounts Payable Notes Payable Accruals Total Current Liabilities Long Term Bonds TOTAL DEBT Preferred Stock Common Stock Retained earnings TOTAL COMMON EQUITY TOTAL LIABILITIES AND EQUITY 2017 780 1820 1430 4030 9802 13832 520 1690 9958 11648 26000 2016 520 780 1690 2990 7540 10530 520 1690 9100 10790 21840 2017 41600 35100 6500 1300 2016 37050 32461 4589 1170 Income Statement: 12/31/17 Net Sales Operating Costs (excludes Dep/Amortization) EBITDA Depreciation Amortization Depreciation and Amortization EBIT Less Interest EBT Taxes (40%) NET INCOME (before Preferred Dividends) Preferred Dividends NET INCOME Common Dividends Addition to Retained Earnings 1300 5200 1144 4056 16224 2433.6 1170 3419 780 2639 105.56 1583.4 52 15314 2381.6 1521 860.6 689 842.4

Answer 1

Answer-

The Free cash flow for the firm in 2017 is

FCFF = NI + NCC + Interest ( 1- tax rate) - FCInv - WCInv
Where

NI = net income = 2381.6
NCC = non-cash charges which includes depreciation and amortization
NCC = 1300 +0
FCInv = Investment in fixed capital which includes capital expenditures for PP&E minus sales of fixed assets.
FCInv = 13000 - 11310
WCInv = Investment in working capital equals the increase in short-term operating assets net of operating liabilities.
WCInv = Increase in accounts receivable + Increase in inventory – Increase in accounts payable - increase in notes payable – Increase in accrued liabilities
WCInv = ( 4875 - 4095 ) + ( 7995 - 5395) - ( 780 - 520) - ( 1820 -780 ) - (1430 - 1690)
WCInv = 780 + 2600 - 260 - 1040 + 260 = 2340

FCFF = 2381.6 + 1300 + 0 + 1144 x ( 1 - 0.40 ) - (13000 - 11310) - 2340
FCFF = 3681.6 + 1144 x 0.6 - 1690 - 2340
FCFF = 4368 - 5720
FCFF = - 1352