(13–1)

Free Cash Flow Use the following income statements and balance sheets to calculate Garnet Inc.’s free cash flow for 2011.

Garnet Inc.

Income Statement 2011 2010 Net sales $530.0 $500.0 Costs (except depreciation) 400.0 380.0 Depreciation 30.0 25.0 Total operating costs $430.0 $405.0 Earnings before interest and taxes (EBIT) 100.0 95.0 Less interest 23.0 21.0 Earnings before taxes $ 77.0 $ 74.0 Taxes (40%) 30.8 29.6 Net income $ 46.2 $ 44.4 Balance Sheet 2011 2010 Assets Cash $ 28.0 $ 27.0 Marketable securities 69.0 66.0 Accounts receivable 84.0 80.0 Inventories 112.0 106.0 Total current assets $293.0 $279.0 Net plant and equipment 281.0 265.0 Total assets $574.0 $544.0 Liabilities and Equity Accounts payable $ 56.0 $ 52.0 Notes payable 138.0 130.0 Accruals 28.0 28.0 Total current liabilities $222.0 $210.0 Long-term bonds 173.0 164.0 Common stock 100.0 100.0 Retained earnings 79.0 70.0 Common equity $179.0 $170.0 Total liabilities and equity $574.0 $544.0