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29 May, 00:39

The following financial information is taken from the annual reports of the Jackson Company and the Pearce Company: Jackson Pearce Cash flow from operating activities $500,000 $1,500,000 Cash investment in property & equipment 150,000 480,0001. Calculate the free cash flow for each company. 2. Which firm has better cash flow health? Jackson / Pearce

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  1. 29 May, 01:00
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    1. Jackson = $350,000 and Pearce = $1,020,000

    2. Pearce

    Explanation:

    The formula to compute the free cash flow is shown below:

    = EBIT * (1 - Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - net capital Expenditure

    But for this question, the formula would be

    = Cash flow from operating activities - Cash investment in property & equipment

    1. For Jackson, it would be

    = $500,000 - $150,000

    = $350,000

    For Pearce, it would be

    = $1,500,000 - $480,000

    = $1,020,000

    2. If we see and compare the free cash flow, the Pearce has better cash flow due to the high cash flow from operating activities
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Home » Business » The following financial information is taken from the annual reports of the Jackson Company and the Pearce Company: Jackson Pearce Cash flow from operating activities $500,000 $1,500,000 Cash investment in property & equipment 150,000 480,0001.
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