Question 1: The forecasts of the financial statements of a privately-owned hardware store, Swann Brothers, are given below. The company is subject to a 30% tax rate Based on the forecast information, calculate the free cash flow for years 1 through 3 using both the EBIT and CFO methods.

$ millons

Forecast

Year 0 1 2 3

Sales $100.00 $108.00 $117.70 $121.23

Cost of goods sold $65.00 $73.00 $76.51 $78.80

Selling, general and administrative expenses $15.00 $16.00 $17.66 $18.18

Depreciation $10.00 $11.00 $11.77 $12.12

Interest payment on debt $2.00 $2.50 $3.00 $3.50

Current assets $10.00 $11.00 $11.77 $12.12

Current liabilities $8.00 $8.80 $9.42 $9.70

Capital expenditure $5.00 $5.50 $5.89 $6.06

FREE CASH FLOW

Solution starts below

Other inputs needed for calculation:

Variable name Value

Solution - EBIT method:

Solution - CFO method: