Question
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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started