You Are Considering an Investment in Fields and Struthers, Inc

question 108

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 2012 to 2013. 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 2013.

• 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 Controllable Cost Variance

The difference between the actual controllable costs incurred and the standard or expected controllable costs, aiming to measure performance in managing costs that are supposed to be under the company's control.

Overhead Costs

Expenses that are not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Direct Materials Quantity Variance

The difference between the actual quantity of direct materials used and the expected quantity, multiplied by the standard cost per unit.

Direct Labor Rate Variance

The difference between the actual cost of direct labor and the standard cost, attributed to the difference in the hourly wage rate paid and the standard rate expected.