You Are Considering an Investment in Crew Cut, Inc

question 121

Multiple Choice

You are considering an investment in Crew Cut, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23 million, paid taxes of $4 million, and its depreciation expense was $8 million. Crew Cut's gross fixed assets increased by $10 million from 2017 to 2018. The firm's current assets increased by $6 million and spontaneous current liabilities increased by $4 million. What is Crew Cut's operating cash flow, investment in operating capital and free cash flow for 2018, respectively in millions?

• A) $23, $10, $13
• B) $23, $12, $11
• C) $27, $10, $17
• D) $27, $12, $15

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Definitions:

Actual Costs

The actual expenses incurred in the production of goods or services, including all direct and indirect costs.

Standard Costs

Predetermined costs for materials, labor, and overhead used as targets for controlling production costs.

Direct Materials Price Variance

The difference between the actual cost and the standard cost of direct materials used in production.

Standard Materials Quantity

The estimated amount of materials expected to be used in the production of a product under normal operating conditions.