Because of the dramatic growth at East Coast Yachts, Larissa decided that the company should be reorganized as a corporation.Time has passed and, today, the company is publicly traded under the ticker symbol "ECY".

Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the company's financial performance. Dan graduated from college five years ago with a finance degree, and he has been employed in the treasury department of a Fortune 500 company since then.

EAST COAST YACHTS

2017 Income Statement

Sales $611,582,000

Cost of goods sold 431,006,000

Selling, general, and administrative 73,085,700

Depreciation 19,958,400

EBIT $87,531,900

Interest expense 11,000,900

EBT $76,531,000

Taxes $30,612,400

Net income $45,918,600

Dividends $ 17,374,500

Retained earnings $28,544,100

The company's past growth has been somewhat hectic, in part due to poor planning. In anticipation of future growth, Larissa has asked Dan to analyze the company's cash flows. The company's financial statements are prepared by an outside auditor. Nearby you will find the most recent income statement and the balance sheets for the past two years.

Larissa has also provided the following information. During the year, the company raised $40 million in new long-term debt and retired $22.6 million in long-term debt. The company also sold $24.2 million in new stock and repurchased $35.64 million. The company purchased $59.5 million in fixed assets and sold $6,718,200 in fixed assets.

CASH FLOWS AT EAST COAST YACHTS:

1. What is the Free Cash Flow (FCF) of the Firm?

2. Are there any issues with East Coast Yachts' cash flows? Explain and discuss.

3.What do you think about Larissa's expansion plans?

YOU MAY USE THIS TEMPLATE FOR THE FREE CASH FLOW (FCF).

FCF TEMPLATE: CALCULATING FREE CASH FLOWS:

Step 1-Income Statement

Operating income or Profit (EBIT)$

Plus, Depreciation$

Minus the Cash Tax Payment$

--------------

After Tax Cash Flow from operations$

Step 2-Balance Sheet-- add to, or subtract from the after-tax cash flows

NOTE: You cannot subtract and increase an item at the same time. You have to select one.

Increase in current assets-subtract from cash flows OR$

Decrease in current assets-add to cash flows$

Increase in fixed assets/plant-subtract from cash flows OR$

Decrease in fixed assets/plant-add to cash flows$

Increase in non-interest-bearing current liabilities-add to cash flowOR$

Decrease in non-interest-bearing current liabilities-subtract from cash flows$

-----------------

Free cash flows from an operating or asset perspective$