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Calculate free cash flow for 2017 for Monarch Textiles, Inc., based on the financial information that...

Calculate free cash flow for 2017 for Monarch Textiles, Inc., based on the financial information that follows. Assume that all current liabilities are non-interest-bearing liabilities and that no fixed assets were sold or disposed of during 2017. (Enter your answer in 1000s.)

Monarch Textiles, Inc. ($ thousands)
Income statement Selected balance sheet items
2017 2016 2017
Sales 1,610 Current assets 470 655
Cost of sales 870 Net fixed assets 168 336
Operating expenses 185 Current liabilities 285 365
Depreciation 84
Interest expense 50
Earnings before taxes 421.00
Tax 168.40
Net income 252.60

What is the free cash flow?

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Expert Solution

EBIT = EBT + Interest Expense
EBIT = $421.00 + $50.00
EBIT = $471.00

Tax Rate = Tax / EBT
Tax Rate = $168.40 / $421.00
Tax Rate = 40%

Working Capital, 2017 = Current Assets, 2017 - Current Assets, 2017
Working Capital, 2017 = $655.00 - $365.00
Working Capital, 2017 = $290.00

Working Capital, 2016 = Current Assets, 2016 - Current Assets, 2016
Working Capital, 2016 = $470.00 - $285.00
Working Capital, 2016 = $185.00

Change in Working Capital = Working Capital, 2017 - Working Capital, 2016
Change in Working Capital = $290.00 - $185.00
Change in Working Capital = $105.00

Capital Expenditure = Net Fixed Assets, 2017 - Net Fixed Assets, 2016
Capital Expenditure = $336.00 - $168.00
Capital Expenditure = $168.00

Free Cash Flow = EBIT * (1 - Tax Rate) - Change in Working Capital - Capital Expenditure
Free Cash Flow = $471.00 * (1 - 0.40) - $105.00 - $168.00
Free Cash Flow = $282.60 - $105.00 - $168.00
Free Cash Flow = $9.60

jeff jeffy answered 1 year ago
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