Question

Babe’s Batting Cages projects the following income statement for 2018:

                                                  

Sales                       $ 241,745                          

Operating costs
excl.depr. & amort.      140,212

EBITDA                         101,533                          

Depr. & Amort.              16,000

EBIT                               85,533                          

Interest                             2,200

EBT                                 83,333                             

Taxes (40%)                  33,333

Net Income                $ 50,000                                                     

2018 Balance Sheet Assumptions:

Accounts receivable increase by $5,000

Inventory decreases by $2,000

Accounts payable increases by $2,000

Accruals increase by $1,000

Net fixed assets increase by $20,000

Notes payable increase by $2,500

Long-term debt increases by $20,000

Retained earnings increase by $40,000

Create a cash flow statement for 2018 through the net change in cash. (Show your work; 2 points)

What is the Free Cash Flow for 2018? (Show your work; 1 point)

Answer 1

Create a cash flow statement for 2018 through the net change in cash.

Cash flow from operating activities
Net income	50000
Adjustment to reconcile net income
Depr. & Amort.	16000
Accounts receivable increase	(5000)
Inventory decreases	2000
Accounts payable increases	2000
Accruals increase	1000
Net cash flow from operating activities	66000
Cash flow from investing activities
Net fixed assets increase	(20000)
Net cash flow from investing activities	(20000)
Cash flow from financing activities
Notes payable increase	2500
Long-term debt increases	20000
Dividend paid	(10000)
Net cash flow from financing activities	12500
Net change in cash	58500

Free Cash Flow = Cash flow from operating activities-Net fixed assets increase

                         = 66000-20000

Free cash flow = 46000

Answer 2

Particulars	Amount	Amount2	Explanation
Cash flow through indirect method
Cash from operating activities
		USD
Income	50,000
Add: Tax	33,333
Net Income before tax		83,333.00
Add :
Interest	2,200		Financing activity and hence classified in that category
Depreciation	16,000		Non cash item and moved out of Cash flow statement
Decrease in inventory	2,000		Increase in asset = Decrease in cash flow Decrease in asset = Increase in cash flow
Increase in accounts payable	2,000		Increase in liability = Increase in cash flow Decrease in liability = Decrease in cash flow
Increase in notes payable	2,500		Increase in liability = Increase in cash flow Decrease in liability = Decrease in cash flow
		24,700
Less :
Increase in receivable	5,000		Increase in asset = Decrease in cash flow Decrease in asset = Increase in cash flow
Accruals increase	1,000		Increase in asset = Decrease in cash flow Decrease in asset = Increase in cash flow
		6,000
Less: Tax		(33,333)
1. Cash from operating activities		68,700
Cash from investing activities
Increase in fixed assets	(20,000)
2. Cash from investing activities		(20,000)
Cash from financial activities
Interest	(2,200)
Debt borrowed	20,000
3. Cash from financial activities		17,800
Net change in cash position (1) +(2) +(3)		66,500