Quantitative Problem: Rosnan Industries\' 2013 and 2012 balance sheets and incom

Question

Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below.

The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash.

Using the financial statements given above, what is Rosnan's 2013 free cash flow (FCF)? Use a minus sign to indicate a negative FCF.
$  

Balance Sheets: 2013 2012 Cash and equivalents $100   $85   Accounts receivable 275   300   Inventories 375   250         Total current assets $750   $635   Net plant and equipment 2,300   1,490   Total assets $3,050   $2,125   Accounts payable $150   $85   Accruals 75   50   Notes payable 150   75         Total current liabilities $375   $210   Long-term debt 450   290   Common stock 1,225   1,225   Retained earnings 1,000   400   Total liabilities and equity $3,050   $2,125  

Explanation / Answer

EBIT = 1250, Tax rate = 400

= 2300 -1490 = 810

Working capital = Current assets - Current liabilities = 750 - 375 = 375 ( 2013)
Working capital = 635 -210 = 425
Change in WC = Working Capital of 2013 - Working Capital of 2012 = 375 - 425 = -50
FCF = EBIT * ( 1- Tax rate ) + depereciation and amortisation - change in Capex +/- change in working capital
= 1250 * (1-0.4 ) + 100 -810 - 50 = -$10

Best of Luck. God Bless

Depreciation and amortization = 100
Change in capex = Plant and Machinery of 2013 - Plant and machinery of 2012

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