1. What is the free cash flow for 2014?

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FIN534 Week 2 Homework Assignment Set 1


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FIN534 Week 2 Homework Assignment Set 1

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Dedra L. JonesFIN 534Week 2/Homework Set 11. What is the free cash flow for 2014?NOPAT = EBIT (1- Tax Rate)NOPAT = $502,640 (1-0.4)NOPAT = $301,584NOWC = Operating current assets - Operating current LiabilitiesNOWC = $2,608,480 - $739,800NOWC = $1,868,680Total Net Operating Capital = NOWC + Operating long-term assetsTotal Net Operating Capital = $1,868,680 + $836,840Total Net Operating Capital = $2,705,520Net Investment in Operating Capital = Total Net Operating Capital 2014 -Total Net OperatingCapital 2013Net Investment in Operating Capital = $2,705,520 - $2,257,632Net Investment in Operating Capital = $447,888Free Cash Flow =NOPAT - Net Investment in operating capitalFree Cash Flow = (-146,304)2. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. Nochanges in operations occurred. What would happen to reported profit and to net cash flow?If the depreciation expense is doubled to $240,000 net income will decrease and cash flow willincrease.Decrease in Net Income =Change Deprecation Amount*(1-Tax Rate)Decrease in Net Income = 120,000(1-0.4) = 72,000Increase in cash Flow = Change Deprecation Amount*(1-Tax Rate)Increase in cash Flow = 120,000*40% = $48,7843. Calculate the 2014 current and quick ratios based on the projected balance sheet and incomestatement data. What can you say about the companys liquidity position in 2013?Current Ratio= current assets/current liabilitiesCurrent Ratio= 2,680,112/1,03
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