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1. A firm has the financial information shown below. The average tax rate is 30%. Th ratio is 50%. Calculate OCF, NCS, change
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Answer #1
OCF=Operating Cash flow=EBIT-taxes+depn.
ie.6000-840+3000=
8160
NCS=Net capital spending=Ending net fixed assets-Beginning net fixed assets+Depn. For the year
OR Ending gross fixed assets-Beginning gross fixed assets
ie. 168000-155000+3000=
16000
OR Ending gross fixed assets-Beginning gross fixed assets
186000-170000=
16000
written as -16000 (cash outflow)
Change in NWC=Year 2(Current assets-Current Liabilities)-Year 1(Current assets-Current Liabilities)
ie. (12000-9000)-(10000-8000)=
1000
ie. Increase in NWC , so cash outflow , in acquiring additional working capital---may be increase of current assets or Decrease /payment of any current liability
so, written as -1000
CFS=Cash flow for Stockholders=Dividends paid-new equity raised
(1960*50%)-(13020-8000)=
-4040
CFC=Cash flow to Creditors=Interest paid-Net borrowings
ie.3200-(88000-80000)=
-4800
Cash flow from assets(CFFA)=CFS+CFC
CFFA=OCF+/-change in NWC-CAPEX
ie. 8160-1000-16000=
-8840
CFS+CFC=-4040-4800=
-8840
CFFA=CFS+CFC
FCF=Net Income+depn+/- Change in NWC-Capital expenditure
ie.1960+3000-1000-16000=
-12040
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