NARRBEGIN: Cold Weather Sports
Cold Weather Sports,Inc.(CWS)
Cold Weather Sports,Inc.(CWS)just completed its 2012 fiscal year.During the year,CWS had sales of $10,000 and total expenses (no interest expenses were incurred)of $6,000.Assume that CWS pays 30% of its EBIT in taxes and that depreciation expense of $1,200 is included in the total expense number listed above.A list of some balance sheet items for CWS for end of fiscal year 2011 and 2012 is as below.
No fixed assets were disposed of during the year.
-What is the amount of free cash flow generated by Cold Weather Sports in 2012?

Question

NARRBEGIN: Cold Weather Sports
Cold Weather Sports,Inc.(CWS)
Cold Weather Sports,Inc.(CWS)just completed its 2012 fiscal year.During the year,CWS had sales of $10,000 and total expenses (no interest expenses were incurred)of $6,000.Assume that CWS pays 30% of its EBIT in taxes and that depreciation expense of $1,200 is included in the total expense number listed above.A list of some balance sheet items for CWS for end of fiscal year 2011 and 2012 is as below.
   No fixed assets were disposed of during the year.
-What is the amount of free cash flow generated by Cold Weather Sports in 2012?

Quizplus · Accepted Answer

Change in CA = 1,200 - 1,000 = 200
Change in AP = 800 - 600 = 200
Change in Accrued = 600 - 500 = 100
OCF = 10,000 sales - 6,000 expense - 1,200 tax + 1,200 depreciation expense = 4,000
Change in FA = 5,600 - 5,000 + 1,200
FCF = OCF - Change FA - (Change in CA - Change in AP - Change in Accrued)
= 4,000 - 1,800 - (200 - 200 - 100)= 2,300