The statement of cash flows for Daimler AG follows:

REQUIRED:

a. Daimler begins its cash flow statement with before-tax income of €14,301 million, then adds €5,676 million for depreciation and amortization. Why is Daimler adding depreciation and amortization to net income in this computation?

b. Why does Daimler subtract €453 million of gains on disposals of assets in its indirect method cash flows from operating activities? If these gains are all created by disposals of property, plant, and equipment and intangible assets, what was the book value of the assets Daimler disposed of during fiscal year 2017?

c. Daimler shows a negative€ 1,455 million for inventories in the statement of cash flows. Does this mean that Daimler paid €1,455 million for inventories in 2017? Explain.

d. Compute Daimler's free cash flow for 2017. How did the company finance its investing activities?

e. Daimler reports a net cash outflow from operating activities of€ 1,652 million, despite reporting pre-tax income of €14,301 million. What principal activities account for this difference? Does this raise concerns about the health of Daimler AG?

f. Why does Daimler list the "effect of foreign exchange rate changes on cash and cash equivalents" in its statement of cash flows? What does this amount represent?

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DAIMLER AG Consolidated Statement of Cash Flows Year Ended December 31, 2017 (€ millions) Profit belore income taxes €14,301 Depreciation and amortization/impairments. Other noncash expense and income. Gains (-Mosses (+) on disposals of assets Change in operating assets and liabilities Inventories 5,676 (1,507) (453) (1.455) (1,592) 1,288 (11,145) (3,681) (48) Trade receivables. Trade payables.. Receivables from financial services Vehicles on operating leases Other operating assets and liabilities Dividends received from equity-method investments Income taxes paid ..... 843 (3,879) Cash used for/provided by operating activities (1,652) Additions to property, plant, and equipment... Additions to intangible assets.. Proceeds from disposals of property, plant, and equipment and intangible assets Acquisition of Athlon Car Lease International B.V. Investments in shareholdings.... Proceeds from disposals of shareholdings. Acquisition of marketable debt securities.. (6.744) (3,414) 812 41 (1,146) 418 (6.729) 7,266 (22) Proceeds from sales of marketable debt securities Other. Cash used for investing activities (9.518) Change in short-term financing liabilities . Additions to long-term financing liabilities. Repayment of long-term financing liabilities. Dividend paid to shareholders of Daimler AG. Dividends paid to noncontrolling interests Proceeds from issuance of share capital. Acquisition of treasury shares .... Acquisition of nonoontrolling interests in subsidiaries 751 63,116 (47,073) (3.477) (250) 114 (42) (10) Cash provided by financing activities .. 13,129 Effect of foreign exchange rate changes on cash and cash equivalents. (868) Net increase in cash and cash equivalents... Cash and cash equivalents at the beginning of the period 1,091 10,981 Cash and cash equivalents at the end of the period €12,072