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Calculate free cash flow (cash flow from assets) for 2002, and 2003. Exhibit 1 Operating Statements for Years Ending December 31, 20012003, and for First

Calculate free cash flow (cash flow from assets) for 2002, and 2003.

Exhibit 1 Operating Statements for Years Ending December 31, 20012003, and for First Quarter 2004 (thousands of dollars)

2001 2002 2003 First Quarter 2004
Net sales $1,697 $2,013 $2,694 $ 718a
Cost of goods sold
Beginning inventory 183 239 326 418
Purchases 1,278 1,524 2,042 660
$1,461 $1,763 $2,368 $1,078
Ending inventory 239 326 418 556
Total cost of goods sold $1,222 $1,437 $1,950 $522
Gross profit 475 576 744 196
Operating expenseb 425 515 658 175
Interest expense 13 20 33 10
Net income before taxes $37 $41 $53 $11
Provision for income taxes 6 7 9 2
Net income $31 $34 $44 $9
Source: Case author.
aIn the first quarter of 2003 sales were $698,000 and net income was $7,000.

bOperating expenses include a cash salary for Mark Cartwright of $75,000 in 2001, $85,000 in 2002, $95,000 in 2003, and $22,000 in the first quarter of 2004. Cartwright also received some of the perquisites commonly taken by owners of privately held businesses.

Exhibit 2 Balance Sheets at December 31, 20012003, and March 31, 2004 (thousands of dollars)
2001 2002 2003 First Quarter 2004
Cash $58 $48 $41 $31
Accounts receivable, net 171 222 317 345
Inventory 239 326 418 556
Current assets $468 $596 $776 $932
Property, net 126 140 157 162
Total assets $594 $736 $933 $1,094
Notes payable, bank $ -- $146 $233 $247
Notes payable, Stark 105 -- -- --
Notes payable, trade -- -- -- 157
Accounts payable 124 192 256 243
Accrued expenses 24 30 39 36
Long-term debt, current portion 7 7 7 7
Current liabilities $260 $375 $535 $690
Long-term debt 64 57 50 47
Total liabilities $324 $432 $585 $737
Net worth 270 304 348 357
Total liabilities and net worth $594 $736 $933 $1,094

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