Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.

December 31

Assets 2015 2014

Cash $ 1,500 $ 1,000

Marketable securities 1,800 1,200

Accounts receivable 2,000 1,800

Inventories 2,900 2,800

Total current assets $ 8,200 $ 6,800

Gross fixed assets $29,500 $28,100

Less: Accumulated depreciation 14,700 13,100

Net fixed assets $14,800 $15,000

Total assets $23,000 $21,800

Liabilities and stockholder’s equity

Accounts payable $ 1,600 $ 1,500

Notes payable 2,800 2,200

Accruals 200 300

Total current liabilities $ 4,600 $ 4,000

Long-term debt 5,000 5,000

Total liabilities $ 9,600 $ 9,000

Common stock $10,000 $10,000

Retained earnings 3,400 2,800

Total stockholder’s equity $13,400 $12,800

Total liabilities and stockholder’s equity $23,000 $21,800

Keith Corporation Income Statement Data (2015)

Depreciation expense $1,600

Earnings before interest and taxes (EBIT) 2,700

Interest expense 367

Net profits after taxes 1,400

Tax rate 40%

a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended

December 31, 2015, using Equation 4.1.

b. Calculate the firm’s operating cash flow (OCF) for the year ended December 31, 2015, using Equation 4.3.

c. Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2015, using Equation 4.4.

d. Interpret, compare, and contrast your cash flow estimates in parts b and c.