Question

in 2018, PF Chan has gross profit of $100,000. It has $12,000 in depreciation expenses and $18,000 SG&A. The company has no debt. The effective tax rate is 28%. The company reported net fixed asset of $200,000 and net working capital of $35,000 in 2018, and $180,000 in net fixed assets and $28,000 in net working capital in 2017. What is the operating cash flow and free cash flow for PF Chan in 2018?

Answer 1

Ans. 1	Particulars	Amount
	Gross Profit	$100,000
	Less: Operating expesnes:
	Depreciation expenses	$12,000
	Selling, general & administrative (SG&A)	$18,000
	Total operating expenses	$30,000
	Operating income	$70,000
	Less: Interest	$0
	Earnings before taxes	$70,000
	Less: Tax @ 28%	$19,600
	Net income	$50,400
	Add: Depreciation	$12,000
	Operating cash inflow	$62,400
Ans. 2	Particulars	Amount
	Operating cash inflow	$62,400
	Less: Change in net working capital	$7,000
	Less: Capital expenditures	$20,000
	Free cash flow	$35,400
	*Change in net working capital = Ending working capital (2018) - Ending working capital (2017)
	$35,000 - $28,000
	$7,000
	*Capital expenditures = Ending fixed assets (2018) - Beginning fixed assets (2017)
	$200,000 - $180,000
	$20,000