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Finance 534 Homework Set 1 Week 2

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Submitted By dsuler
Words 410
Pages 2
Dennis Suler
FIN 534
Assignment Set #1

1. What is the Free Cash Flow for 2014?
Free Cash Flow = NOPAT – Net Investment In Operating Capital
To find NOPAT = EBIT * (1 – Tax Rate)
= 502,640 * (1-.4)
= 502,640 *.6
= 301,584
So, FCF = 301,584 – Net Investment in Operating Capital
2014 Net Operating Working Capital= Operating current assets – Operating Current Liabilities
= (Cash+Accounts receivable+Inventories) – (Accounts payable + accruals)
= (14000+878000+1716480)- (359800+380000)
=2,608,480 – 739,800
= 1,868,680
2013 NOWC was
NOWC = (7282+632160+1287360)-(324000+284960)
= 1926802-608960
=1,317,842
Net Investment in Operating Capital is
1868680 – 1317842 = 550,838
So, FCF = 301,584 – 550,838
= -249,254 2. Suppose Congress Changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and net cash flow?
If depreciation doubled, reported profit shrinks by 120,000 for 2014 (253,584 – 120,000) to 138,584 in 2014.
Net cash flow would actually increase by $120,000, so it would be $498,584 3. Calculate the2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013?
Current ratio = current assets/current liabilities
Current ratio= 2680112/1039800
= 2.577
= 2.6
Quick ratio= (current assets – inventory)/current liabilities
= (2680112-1716480)/1039800
= 963632/1039800
= .9
In 2013, the company held an excess of inventory and had quite liability to assets ratio. It was significantly below industry averages on both current and quick ratios as well as Days Sales Outstanding, illustrating that it did not have a strong liquidity position in 2013. 4. Use the extended DuPont equation to provide a summary and overview of the company’s financial position as

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