Final Exam Review Session
a.Net operating profit after taxes (NOPAT)
 Earnings before interest and taxes (EBIT)  [1  Tax rate (T)]  $2,700  (1  0.21)  $2,133.
b.OCF  NOPAT  Depreciation  $2,133  $1,600  $3,733
c.FCF  OCF  Net fixed asset investment (NFAI)  Net current asset investment (NCAI)
NFAI = ∆Net fixed assets Depreciation = ($14,800  $15,000)  $1,600 = $1,400
NCAI = ∆Current Assets ∆Accounts payable ∆ccruals)
= ($8,200  $6,800)  ($1,600  $1,500)  ($200  $300) = $1,400. So,
FCF  $3,733  $1,400  $1,400  $933
d.Keith Corporation has positive cash flows from operating activities. Operating cash flow (OCF) is
more than twice NOPAT. FCF is positive, meaning cash flows from operations are adequate to cover
both operating expense plus investment in fixed and current assets.
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Leonard Industries Balance Sheet December 31, 2019
Assets
Liabilities and Stockholders' Equity
Cash
$45,000
Accounts payable
$395,000
Marketable securities
$15,000
Accruals
$60,000
Accounts receivable
$255,000
Other current liabilities
$30,000
Inventories
$340,000
Total current liabilities
Total current assets
Net fixed assets
Total assets
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$655,000
$600,000
$1,255,000
$485,000
Long-term debt
$350,000
Common stock
$200,000
Retained earnings
$220,000
Total liabilities and stockholders'
equity
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$1,255,000
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