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    Free cash flows and financing cash flows

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    Calculate the free cash flows and financing cash flows for Abrahams Manufacturing Company for the year ended December 31, 2008.

    Company Balance Sheet for 12/31/2007 and 12/31/2008

    2007 2008
    Cash $ 89,000 $ 100,000
    Accounts receivable 64,000 70,000
    Inventory 112,000 100,000
    Prepaid expenses 10,000 10,000
    Total current assets 275,000 280,000
    Gross plant and equipment 238,000 311,000
    Accumulated depreciation (40,000) (66,000)
    Total assets $ 473,000 $ 525,000

    Accounts payable $ 85,000 $ 90,000
    Accrued liabilities 68,000 63,000
    Total current debt 153,000 153,000
    Mortgage payable 70,000 0
    Preferred stock 0 120,000
    Common stock 205,000 205,000
    Retained earnings 45,000 47,000
    Total debt and equity $ 473,000 $ 525,000

    Company Income Statement for the year ended 12/31/2008

    2008
    Sales $ 184,000
    Cost of goods sold 60,000
    Gross profit $ 124,000
    Selling, general & admin. Expenses 44,000
    Depreciation expense 26,000
    Operating income $ 54,000
    Interest expense 4,000
    Earnings before taxes $ 50,000
    Taxes 16,000
    Preferred stock dividends 10,000
    Earnings available to common shareholders $ 24,000

    Additional Information
    1. The only entry in the accumulated depreciation account is for 2008 depreciation.
    2. The firm paid $ 22,000 in common stock dividends during 2008.

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    Abrahams Manufacturing Company
    Free Cash Flows:
    Operating income 54,000
    Depreciation 26,000
    Income taxes (16,000)
    After-tax cash flows from ...

    Solution Summary

    The solution explains how to calculate free cash flows and financing cash flows for Abrahams Manufacturing Company.

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