Martha's Moving Van 4U, Inc. had free cash flow during 2013 of $1 million, EBIT of $30 million, tax expense of $8 million, and depreciation of $4 million. Using this information, what was Martha's Accounts Payable ending balance in 2013?

Question

Quizplus · Accepted Answer

Free cash flow = EBIT - Taxes + Depreciation - Capital expenditures +/- Change in working capital 
$1 million = $30 million - $8 million + $4 million - Capital expenditures +/- Change in Accounts Payable 
Since Martha's Moving Van 4U, Inc.'s Accounts Payable ending balance in 2012 is not given, we assume it to be zero. 
Therefore, the change in Accounts Payable = Accounts Payable (ending balance in 2013) - Accounts Payable (ending balance in 2012) = Accounts Payable (ending balance in 2013) - $0 = Accounts Payable (ending balance in 2013) 
Solving for Accounts Payable (ending balance in 2013): 
$1 million = $26 million - Capital expenditures + Accounts Payable (ending balance in 2013) 
Accounts Payable (ending balance in 2013) = $1 million + Capital expenditures - $26 million 
We do not have information on capital expenditures, so we cannot calculate the exact value of ending Accounts Payable. However, we do know that it must be a positive number, which eliminates choices A and B. Therefore, the best choice is C.