FINA3310-Practice_problems - Chapter 3 Practice problems...

Chapter 3- Practice problems
Prepared by Dr. Theodossiou
Free Cash Flow Practice Problem
You are given the following financial statements for Martin Manufacturing Company. Calculate the Free Cash Flow (FCF)
Sales Revenue $5,075,000
Less: Cost of Goods sold 3,704,000
Gross Profits $1,371,000
Less: Operating Expenses
Selling Expense $650,000
General & Administrative Expense 416,000
Depreciation Expense 152,000
Total Operating Expense 1,218,000 $
Operating Profits or EBIT 153,000 $
Less: Interest Expense 93,000 $
Net Profits before taxes 60,000 $
Less: Taxes @ T=40% 24,000
Net profits after taxes 36,000 $
Martin ManufacturingCompany
Income Statement
for the year ended December 31, 2009

2009 2008
Current assets
Cash 25,000 24,100
Accounts receivable 805,556 763,900
Inventories 700,625 763445
Total current assets $1,531,181 $1,551,445
Gross Fixed Assets 2,093,819 1,691,707
Less: Accumulated depreciation 500,000 348,000
Net fixed assets 1,593,819 1,343,707
Total assets 3,125,000 2,895,152
Current Liabilities
Accounts payable $230,000 $400,500
Notes payable 311,000 370,000
Accruals 75,000 100,902
Total current liabilities $616,000 $871,402
Long term liabilities $1,165,250 $700,000
Total liabilities $1,781,250 $1,571,402
Stockholder's equity
Preferred stock $50,000 $50,000
Common stock 400,000 400,000
Paid-in capital in excess of par 593,750 593,750
Retained earnings 300,000 280,000
Total stockholder's equity $1,343,750 $1,323,750
Total liabilities and stockholder's equity $3,125,000 $2,895,152
Martin Manufacturing Company
Balance Sheets
Liabilities and Stockholders' Equity
December

FCF=OCF – NFAI – NCAI
OCF=EBIT * (1-T) + depreciation = 153,000*(1-0.40) + 152,000 = $243,800
NFAI = net fixed assets
09
– net fixed assets
08
+ depreciation = 1,593,819 -1,343,707 + 152,000 = $402,112
NCAI = (current assets
09
-current assets
08
)-((accounts payable
09
+ accruals
09
) - (accounts payable
08
+ accruals
08
)) =
= (1,531,181-1,551,445) – ((230,000 + 75,000) – (400,500 + 100,902)) = $176,138
FCF=OCF – NFAI – NCAI = $243,800 – $402,112 - $176,138 = -$334,450

Practice Problem P3-10: Cash Budget –Advanced (Page 132)
The actual sales and purchases for Xenocore, Inc. for September and October 2009, along with its forecast sales and purchases for the
period November 2009 through April 2010, follow.