Gven the financial data for Smith Electric Inc compute the f

Gven the financial data for Smith Electric Inc compute the follo ing measures of cashfoWS lor Smith Elect Cfor the year e ded Deceber 31, 2005 The tax rates?067% ayOperating Cash Flow (2 points) b) Free Cash Flow(4 points) For the year ended December 31, 2005 Depreciation EBIT Interest Expenses Taxes $3,000 30,000 3,000 8,000 24,000 45,000 21,000 39,000 27,000 22,000 25,000 Cash Account Receivable Net Fixed Assets Accounts Payable Notes Payable 30,000 24,000 30,000 40,000 1.0002.000 50,000 Path p Cliek Save and Submit to save and subunit Click Save All Annuers to save all 0 Type here to search

Solution

(a) OCF = EBIT –Taxes + Depreciation

OCF = $30,000 - $8,000 + $3,000

= $35,000

b)

FCF = OCF –Net fixed asset investment (NFAI) – Net current asset investment (NCAI)

NFAI = Change in net fixed assets + Depreciation

= (24,000 – 22,000) + 3,000

= $5,000

NCAI = Change in current assets - change in Current liablity(Accounts payable + Accurals)

= (99,000 – 87,000) – (32,000 – 26,000)

= $6,000

FCF = 35,000 - 5,000 - 6,000

= $24,000