Free cash flow of Company Q in the year 2019.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,600 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $41,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $101,000 per year, variable production costs are $25 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $181,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 21 percent and the required rate of return is 23 percent. What is the NPV of this project? Note:…

Forest Enterprises, Incorporated, has been considering the purchase of a new manufacturing facility for $290,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $125,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 2 percent. Production costs at the end of the first year will be $50,000, in nominal terms, and they are expected to increase at 3 percent per year. The real discount rate is 5 percent. The corporate tax rate is 25 percent. Calculate the NPV of the project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV

Help with questions

Answer 2

Question

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Answer 6

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

Answer 7

Chapter 3, Problem 24QP

a)

Summary Introduction

To discuss: Free cash flow of Company Q in the year 2019.

Answer 8

a)

Expert Solution

Explanation of Solution

Generally free cash flow involves three elements they are as follows,

Interest paid to the debt holders of the company.
Cash available to the shareholders of the company.
Finally, subtract cash necessary to pay for new investments.

Net working capital = Net current assets−Net current liabilities=(Accounts payables in 2018- Accounts payables in 2019)−(Receivables in 2019−Receivables in 2018)−(Inventories in 2019−inventories in 2018)−(Other current assets in 2019−Other current assets in 2018)=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Hence, net working capital is -$258.

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+$517+$1,402−$258=$7,126

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$7,126−$3,049=$4,077

Hence, free cash flow is $4,077.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

Answer 13

b)

Summary Introduction

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

Answer 14

b)

Expert Solution

Explanation of Solution

From the income statement it is observed that, interest expense amounting to $517 has paid to debt fund holders. If company has entirely financed by equity there is no need of payment of interest. So that amount is also treated as income. On that income, Company has to pay 21% corporate tax to the government.

Tax= $517×0.21=$108.57

Therefore the amount of $108.57 has been additionally paid by company to government.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Answer 19

c)

Summary Introduction

To determine: Company’s free cash flow if the type of funding is through equity only.

Answer 20

c)

Expert Solution

Explanation of Solution

Free cash flow is calculated by deducting capital expenditures from the cash flow from operations.

Net working capital = Net current assets−Net current liabilities=($3,403−$3,143)−($1,375−$1,335)−($122−$117)−($1,089−$616)=−$258

Cash flow from operations = Net income+Interest+Depreciation−Additions to net working capital=$5,465+0+$1,402−$258=$6,945

The amount of net income is given in the question as $5,465.

Here, capital expenditure is $3,049. Therefore,

Free cash flow= Cash flow from operations−Capital expenditure=$6,945−$3,049=$3,896

$3,896 is the free cash flow of company if it was funded totally by equity.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

Ch. 3 - Prob. 1QP Ch. 3 - Prob. 2QP Ch. 3 - Balance Sheet. Construct a balance sheet for...Ch. 3 - Income Statement. A firm’s income statement...Ch. 3 - Balance Sheet/Income Statement. The year-end 2018...Ch. 3 - Prob. 6QP Ch. 3 - Prob. 8QP Ch. 3 - Prob. 9QP Ch. 3 - Prob. 10QP Ch. 3 - Prob. 11QP

Free cash flow of Company Q in the year 2019.

To discuss: Free cash flow of Company Q in the year 2019.

Explanation of Solution

To determine: Tax to be paid by Company Q if it is entirely financed by equity.

Explanation of Solution

To determine: Company’s free cash flow if the type of funding is through equity only.

Explanation of Solution

Want to see more full solutions like this?

Chapter 3 Solutions