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In: Finance

Given the following financial statements for ARGON Corporation Income Statement Year Ended 12/31/18 Sales $1,300,000 Cost...

Given the following financial statements for ARGON Corporation

Income Statement
Year Ended 12/31/18
Sales	$1,300,000
Cost of Goods Sold	750,000
Operating Expenses	200,000
Depreciation Expense	100,000
EBIT	250,000
Interest Expense	50,000
EBT	200,000
Taxes (40%)	80,000
Net Income	$120,000

Balance Sheet
	12/31/2018	12/31/2017
Current Assets	$50,000	$45,000
Fixed Assets	430,000	350,000
Total Assets	$480,000	$395,000

Current Liabilities	$35,000	$50,000
Long-term Debt	330,000	270,000
Common Stock	5,000	5,000
Retained Earnings	110,000	70,000
Total Liabilities & Equity	$480,000	$395,000

What is ARGON’s FCF?

		$40,000
		$50,000
		-$15,000
		-$20,000

Expert Solution

Compute the working capital for year 2017, using the equation as shown below:

Working capital = Current assets – Current liabilities

= $45,000 - $50,000

= ($5,000)

Hence, the working capital is ($5,000).

Compute the working capital for the year 2018, using the equation as shown below:

Working capital = Current assets – Current liabilities

= $50,000 - $35,000

= $15,000

Hence, the working capital is $15,000.

Compute the increase in working capital, using the equation as shown below:

Increase in working capital = Working capital for 2018 – Working capital for 2017

= $15,000 – ($5,000)

= $20,000

Hence, the increase in the working capital is $20,000.

Compute the capital expenditure, using the equation as shown below:

Capital expenditure = Closing fixed assets + Depreciation – Opening fixed assets

= $430,000 + $100,000 - $350,000

= $180,000

Hence, capital expenditure is $180,000.

Compute the net operating profit after taxes (NOPAT), using the equation as shown below:

NOPAT = EBIT*(1 – Tax rate)

= $250,000*(1 – 0.40)

= $150,000

Hence, NOPAT is $150,000.

Compute the free cash flow, using the equation as shown below:

Free cash flow = NOPAT + Depreciation – Increase in working capital – Capital expenditure

= $150,000 + $100,000 - $20,000 - $180,000

= $50,000

Hence, the free cash flows are $50,000.

jeff jeffy answered 2 years ago

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