You Are Considering an Investment in Fields and Struthers, Inc

question 54

Multiple Choice

You are considering an investment in Fields and Struthers, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $52 million, paid taxes of $10 million, and its depreciation expense was $5 million. Fields and Struthers' gross fixed assets increased by $38 million from 2017 to 2018. The firm's current assets increased by $20 million and spontaneous current liabilities increased by $12 million. Calculate Fields and Struthers' operating cash flow (OCF) , investment in operating capital (IOC) , and free cash flow (FCF) for 2018.

• A) OCF = $42,000,000; IOC = $37,000,000; FCF = $5,000,000
• B) OCF = $47,000,000; IOC = $37,000,000; FCF = $10,000,000
• C) OCF = $42,000,000; IOC = $46,000,000; FCF = −$4,000,000
• D) OCF = $47,000,000; IOC = $46,000,000; FCF = $1,000,000

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Definitions:

Total Output

The total quantity of goods or services produced by a firm or economy over a specific period.

Isoquants

Curves that represent the combinations of inputs that yield the same level of output, used in production theory.

Perfectly Substitutable

Products or services that can be used in place of one another without any loss of utility or value to the consumer, often influencing competitive markets.

Inputs

Resources used in the process of production, including labor, capital, materials, and energy.