Question

Calculate free cash flow for 2017 for Monarch Textiles, Inc., based on the financial information that follows. Assume that all current liabilities are non-interest-bearing liabilities and that no fixed assets were sold or disposed of during 2017. (Enter your answer in 1000s.) Monarch Textiles, Inc. ($ thousands) Income statement Selected balance sheet items 2017 2016 2017 Sales 1,490 Current assets 430 595 Cost of sales 830 Net fixed assets 152 304 Operating expenses 165 Current liabilities 265 345 Depreciation 76 Interest expense 50 Earnings before taxes 369.00 Tax 147.60 Net income 221.40

Answer 1

Answer:

$34.39

Explanation:

EBIT = EBT + Interest Expense

EBIT = 369.00 + 50  

EBIT = $419

Tax Rate = Tax / EBT

Tax Rate = 147.60 / 419

Tax Rate = 0.352267

Tax Rate = 35.23%

Working Capital, 2017 = Current Assets, 2017 - Current Liabilities, 2017

Working Capital, 2017 = 595 - 345

Working Capital, 2017 = $250

Working Capital, 2016 = Current Assets, 2017 - Current Liabilities, 2017

Working Capital, 2016 = 430 - 265

Working Capital, 2016 = $165

Change in Working Capital = Working Capital, 2017 - Working Capital, 2016

Change in Working Capital = $250 - $165

Change in Working Capital = $85

Capital Expenditure = Net Fixed Assets, 2017 - Net Fixed Assets, 2016

Capital Expenditure = $304 - $152

Capital Expenditure = $152

Free Cash Flow = EBIT * (1 - Tax Rate) - Change in Working Capital - Capital Expenditure

Free Cash Flow = $419*(1- 35.23%) - $85 - $152

Free Cash Flow = $271.39 - $85 - $152

Free Cash Flow = $34.39

Answer 2

The free cash flow for 2017 for Monarch Textiles, Inc. is $34.39

What is free cash flow?

Free cash flow (FCF) is the money a company has left, after paying off its operating expenses and capital expenditures. ·

We will calculate the below to arrive at the free cash flow.

EBIT = EBT + Interest Expense

EBIT = 369.00 + 50  

EBIT = $419

Tax Rate = Tax / EBT

Tax Rate = 147.60 / 419

Tax Rate = 0.352267

Tax Rate = 35.23%

Working Capital, 2017 = Current Assets, 2017 - Current Liabilities, 2017

Working Capital, 2017 = 595 - 345

Working Capital, 2017 = $250

Working Capital, 2016 = Current Assets, 2017 - Current Liabilities, 2017

Working Capital, 2016 = 430 - 265

Working Capital, 2016 = $165

Change in Working Capital = Working Capital, 2017 - Working Capital, 2016

Change in Working Capital = $250 - $165

Change in Working Capital = $85

Capital Expenditure = Net Fixed Assets, 2017 - Net Fixed Assets, 2016

Capital Expenditure = $304 - $152

Capital Expenditure = $152

Free Cash Flow = EBIT * (1 - Tax Rate) - Change in Working Capital - Capital Expenditure

Free Cash Flow = $419*(1- 35.23%) - $85 - $152

Free Cash Flow = $271.39 - $85 - $152

Free Cash Flow = $34.39

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