Chapter 3. Cash Flow and Financial Planning. Learning Goals. Understand tax depreciation procedures and the effect of depreciation on the firm’s cash flows. Discuss the firm’s statement of cash flows, operating cash flow, and free cash flow.
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Cash Flow and
NOPAT = EBIT x (1 – T)
OCF = NOPAT + Depreciation
OCF = [EBIT x (1 – T)] + Depreciation
OCF = [$370 x (1 - .40) + $100 = $322
FCF = OCF – NFAI - NCAI
NFAI = Change in net fixed assets + Depreciation
NCAI = Change in CA – Change in A/P and Accruals
NFAI = [($1,200 - $1,000) + $100] = $300
NCAI = [($2,000 - $1,900) + ($800 - $700)] = $0
FCF = $322 – $300 - $0 = $22
the Pro Forma Income Statement (cont.)