ANSWER A

RQUIRED :

Based on your answer to (a), compute s free cash flow for Year 20X8. Discuss TWO (2) main points how free cash flow impacts the companys future earnings and financial condition.

Following the acquisition of ZZA company during Year 20X8, ABC Corporation released its Year 20X8 financial statements. The Year 20X8 financial statements and other data are reproduced below. I ABC Corporation Balance Sheet December 31, 20X8 20X7 $ mil. $ mil. Assets Non-current assets Property, plant, and equipment, net Goodwill, net Investments 8,648 6,582 4,052 15,071 3,260 3,665 14,299 26,979 5,384 + Current assets Inventories Accounts receivable Cash and cash equivalents Total assets 2,222 4,154 2,065 90 168 34,753 20,608 1,440 1,259 1,777 791 Liabilities and Stockholders' Equity Short-term debt Accounts payable Accrued liabilities Income taxes payable Dividends payable Current liabilities 3,848 2,277 727 1,089 260 213 8,233 5,448 17,122 1,719 6,293 2,044 Long-term debt Deferred income taxes Stockholders' equity Total liabilities and stockholders' equity 7,679 6,823 34.753 20.608 I ABC corporation Income Statement For the Year Ending December 31, 20X8 $ mil. Sales Cost of goods sold Selling and administrative expenses Depreciation expense Goodwill amortization Interest expense Pre-tax income Income tax expense Net Income (12,156) (14,410) (654) + (125) (670) 3,727 (1,390) 2337 Note: Dividends declared, $941 million + ABC corporation purchase of ZZA company Allocation of Purchase Price $ mil. 758 Accounts receivable Inventories Property, plant, and equipment Goodwill Short-term debt Accounts payable Accrued liabilities Long-term debt Purchase price (net of cash acquired) 1,232 1,740 10,361 (700) (578) (530) (900) 11.383 Smil ABC Corporation Statement of cashflow For the year ending December 31 20x8 $ mil Net Income 2337 Add(deduct) Depreciation 654 Goodwill ammortisation 125 Increase in recievable -157 Decrease in Deffred tax -325 Increase in inventory -1230 Increase in payables 986 Accrued expense 1571 Net cashflow from operating activities 3961 - 1740 property plant and equipment Net cashflow from investing activity -1740 Short term debt long term debt Dividends net cashflow from financing activities -181 10829 47 10695 Net increase incash 12916