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9. What is XYZ Corp.’s 1-EBIT, 2- Net Cash Flow, 3-Operating Cash Flow, and 4-Free Cash Flow, given: (10 points)
XYZ Corp. (for 2016) Revenue $10,000,000 Wages: $2,000,000
Rent (mixed space, production and administration): $1,000,000 Selling, General, & Administrative Expenses: $3,000,000 D&A: $1,000,000
Property, Plant & Equipment investment: $1,500,000 Tax Rate: 35%
NOWC (2016): $750,000
NOWC (2015): $500,000
Assume no other income, expenses or cash flows.
SHOW ALL WORK
Expert Answer
Ans.
1. Calculation of EBIT :-
Revenue : 10,000,000
Less : expenses-
Wages : 2,000,000
Rent : 1,000,000
Selling expenses : 3,000,000
D & A : 1,000,000
EBIT = 3,000,000
2. Calculation of Net Cash flow :
EBIT : 3,000,000
Add: Non Cash expenses
D & A : 1,000,000
Operating profit before working capital changes : 4,000,000
Incease in NOWC (750,000-500,000) : ( 250,000)
Cash generated from operation : 3,750,000
Less : Tax ( 35% of 3,000,000) : 1,050,000
A. Opreting cash flow : 2,700,000
B. Cash flow from investing Activity : Nill
C. Cash flow from financing Activity : Nill
Net Cash Flow (A+B+C) : 2,700,000
3. Calculation of operating cash flow :
As calculated above in point 2 A. : 2,700,000
4. Calculation of free cash flow :
FCF = Operating cash flow – Capital expenses
= 2,700,000 – 1,500,000
= 1,200,000
