ST-3. (Measuring cash flows) Given the following information for Neff Industries, compute the firm's free cash flows for the year 2003, first from an asset perspective and then from a financing perspective. What do you learn about the firm from these computations?

Neff Industries Balance Sheet for December 31, 2002, and December 31, 2003 2002 2003 Cash Accounts receivable Inventories Total current assets $ 9,000 12,500 29,000 $ 50,500 $ SUO 16,000 45,500 $ 62,000 Land Buildings and equipment Less: allowance for depreciation Total fixed assets Tota Iassets Accounts payable Bank notes Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity 2002 2003 20,000 26,000 70,000 100,000 (28,000) (38,000)
$ 62,000 $ 88,000 $112,500 $150,000 $ 10,500 $ 22,000 17,000 47,000 $ 27,500 $ 69,000 28,750 22,950 31,500 31,500 24,750 26,550 $112,500 $150,000 Neff Industries Income Statement for the Years Ended December 31, 2002, and December 31, 2003 Sales Cost of goods sold Gross profit Operating expense Fixed cash operating expense Variable operating expense Depreciation Total operating expense Earnings before interest and taxes Interest Earnings before taxes Taxes Net income 2002 2003 $125,000 $160,000 75,000 96,000 $ 50,000 $ 64,000 21,000 21,000 12,500 16,000 10,000 38,000 47,000 $ 12,000 $ 17,000 ~
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$ 9,000 $ 10,900 ~ ~
$ 4,500 $ 5,450