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You are the CFO of ABC Corp. You are looking to hire a financial analyst, and youve given an assignment to two short-listed candidates. Youve

You are the CFO of ABC Corp. You are looking to hire a financial analyst, and youve given an assignment to two short-listed candidates. Youve given the following information to the job applicants:

The company reported net sales of $50,000,000. Assume that there were no noncash sales.
Operating costs (excluding depreciation and amortization) were 65% of the companys total revenues.
Depreciation and amortization charges were 5% of total sales.
Interest charges were 15% of earnings before interest and taxes (EBIT) with a tax rate of 40%.

Youve asked the candidates to give you a number that best represents the cash flow situation of the company.

FINN: submits a report stating that the firm has $10,150,000 in cash.

ARTY: submits a report stating that the firm has $7,650,000 in cash.

Based on the information given to them, which applicant has provided a better estimate of the companys current cash flows? Check all that apply.

Arty

Finn

Your follow-up question to both Finn and Arty asks them to think about the difference between their cash flow estimates. The most likely reason for the discrepancy is that failed to:

Subtract the companys depreciation and amortization expenses from ABCs EBIT.

Add back the companys non-cash expenses to ABCs net income.

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