The focus on traditional financial statements is -Select- data rather than cash flow. However, cash flow is important to investors, managers, and stock analysts. Therefore, corporate decision makers and security analysts need to modify accounting data provided to them. An important modification is the concept of free cash flow (FCF). Many analysts regard FCF as being the single and most important number that can be developed from the accounting statements, even more important than net income. The equation for free cash flow is: -Select- FCF = (EBIT(1 - T) + Depreciation and amortization] - [Capital expenditures + ANet operating working capital] cash flow is the cash flow actually available for payments to all investors (stockholders and debtholders) after the company has made investments in fixed assets, new products, and -Select- 1. A negative FCF means that the company does not have sufficient - Select y funds to finance its investments in fixed assets and working capital, and that it will have to raise new money in the -Select- v markets to pay for these investments. Negative FCF is not always bad. If FCF is negative because after-tax operating income is negative this is bad, because the company is probably experiencing operating problems. Exceptions to this might be startup companies, companies incurring significant expenses to launch a new product line, and high-growth companies with large capital investments. Quantitative Problem: Rosnan Industries' 2019 and 2018 balance sheets and income statements are shown below. Balance Sheets 2019 2018 $85 $100 275 300 375 $750 2,300 $3,050 250 $635 1,490 $2,125 Assets Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Common equity Total liabilities and equity $150 75 $85 50 150 75 $210 $375 450 290 825 1,225 1,000 2,225 $3,050 500 1,225 400 1,625 $2,125 Income Statements 2019 2018 $2,230 1,250 $1,400 1,000 Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization EBIT $980 100 $400 75 $325 $880 63 Interest 46 EBT Taxes (25%) Net income $817 204 $613 $279 70 $209 $48 Dividends paid Addition to retained earnings $54 $600 $161.25 Shares outstanding Price WACC 100 $25.00 10.00% 100 $22.50 The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash. Using the financial statements given above, what is Rosnan's 2019 free cash flow (FCF)? Use a minus sign to indicate a negative FCF. Round your answer to the nearest cent. $
