Question #80
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 38
Status: Unattempted
Question
The following information is derived from the financial records of Brown Company for the year ended December 31, 2004: Sales $3,400,000 Cost of Goods Sold (COGS) (2,100,000) Depreciation (300,000) Interest Paid (200,000) Gain on Sale of Old Equipment 400,000 Income Taxes Paid (300,000) Net Income $900,000 Brown issued bonds on June 30, 2004 and received proceeds of $4,000,000. Old equipment with a book value of $2,000,000 was sold on August 15, 2004 for $2,400,000 cash. Brown purchased land for a new factory on September 30, 2004 for $3,000,000, issuing a $2,000,000 note and paying the balance in cash. Cash flow from operations less capital expenditures is:
Answer Choices:
A. $200,000
B. $6,200,000
Explanation
Brown's cash flow from operations (CFO) was $800,000 = ($900,000 Net Income + $300,000
depreciation − $400,000 gain).
Capital expenditure cash flows were −$3,000,000 for the factory and $2,400,000 cash
received from sale of the old equipment for a net outflow of cash of $600,000.
$200,000 = ($800,000 - $600,000).