Question

In: Finance

In 2018, CJH Excavating reported the following information. What is the firm's free cash flow? Dividends...

In 2018, CJH Excavating reported the following information. What is the firm's free cash flow? Dividends are paid out at 31% of earnings for the year. The firm has 50,000 common shares outstanding. The firm's tax rate is 32%.

December 31 Balance Sheet

2017

2018

Assets

Cash

52000

59000

Short-term Investments

13000

17000

Other Assets

173000

158000

Total Assets

238000

234000

Liabilities & Owners' Equity

Accounts Payable

4760

11700

Notes Payable

30940

23400

Total Current Liabilities

35700

35100

Long Term Debt

80920

79560

Total Liabilities

116620

114660

Common Stock

42840

42120

Retained Earnings

78540

77220

Owners' Equity

121380

119340

Total Liabilities & Owners' Equity

238000

234000

Year-End Income Statement

2017

2018

Sales

435240.0

Operating Costs

Variable Costs

326430

Fixed Costs

43524

Depreciation

8705

Earnings before Interest and Taxes (EBIT)

56581.0

Interest Expense

15277

Earnings before Taxes (EBT)

41304.0

Taxes (32%)

13217

Net Income (NI)

28087.0
Fill in your answers below:
2018
Dividends Paid
A-T Interest
Sale of Short Term Investments
Change in Debt
Change in Common Stock
Free Cash Flow

Solutions

Expert Solution

firm's free cash flow = net income + depreciation/non-cash expenses - increase in working capital - capital expenditure

increase in working capital = working capital 2018 - working capital 2017

working capital = current assets - current liabilities

in the above working capital formula, current assets is excluding cash and short-term investments or marketable securities. current assets in the above formula includes only operating current assets.

working capital 2018 = 0 - 35100 = -35100

working capital 2017 = 0 - 35700 = -35700

Increase in working capital = -35100 - (-35700) = -35100 + 35700 = 600

capital expenditure = net fixed assets 2018 + depreciation 2018 - net fixed assets 2017

in the balance sheet, other assets is given. there is depreciation also for 2018. so other assets is net fixed assets in this question.

capital expenditure = 158000 + 8705 - 173000 = -6295

firm's free cash flow = 28087 + 8705 - 600 - (-6295) = 28087 + 8705 - 600 + 6295 = 42487

firm's free cash flow is 42487.

jeff jeffy answered 2 weeks ago
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