SEATWORK2 2-6A - $ (14,000) Asset free cash flows $ 53,800...

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SEATWORK # 2 2-6A. T.P. Jarmon Free cash flows from an asset perspective: Step 1: Compute after-tax cash flows from operations Earnings before taxes $ 70,000 Plus interest expense 10,000 EBIT 80,000 Depreciation 30,000 EBITDA $ 110,000 Tax expense $ 27,100 Less change in tax payable - Cash taxes 27,100 After-tax cash flows from operations $ 82,900 Step 2: Change in net operating working capital Change in current assets: Change in cash $ (1,000) Change in accounts receivable (9,000) Change in inventory 33,000 Change in prepaid rent (100) Change in marketable securities 200 Change in current assets $ 23,100 Change in noninterest-bearing current debt: Change in accounts payable $ 9,000 Change in accrued expenses (1,000) Change in noninterest-bearing current debt: $ 8,000 Change in net operating working capital $ (15,100) Step 3: Change in long-term assets Purchase of fixed assets $ 14,000 (Change in net fixed assets + depr. expense) Change in other assets - Net cash used for investments
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Unformatted text preview: $ (14,000) Asset free cash flows $ 53,800 Free cash flows from a financing perspective: Interest paid to investors $(10,000) Less change in interest payable -Interest received by investors $ (10,000) Decrease in long-term debt (10,000) Decrease in notes payable (2,000) Common stock dividends (31,800) Financing free cash flows $ (53,800) T.P. Jarmon had a successful year, generating an after-tax cash flow of $82,900. To increase cash flow further, noninterest-bearing debt increased by $8,000. Part of this cash was consumed when current assets were increased by $23,100 (of which inventory increased by $33,000). Fixed assets of $14,000 were also purchased. The substantial part of the cash flow, however, was distributed back to the investors. Debt was decreased, both long-term and short-term, by $12,000. Interest of $10,000 was also paid on this debt. Finally, investors were paid $31,800 in dividends....
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This note was uploaded on 06/26/2011 for the course ACCT 101 taught by Professor Gobaco during the Spring '11 term at De La Salle University.

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