In a wildly successful first year in business that started and ended with no required cash, your firm has operating income of $989,000, net income of $637,000, current assets of $900,000, and current liabilities of $659,000. Net capital expenditures were $690,000, and depreciation was $460,000. The firm has never financed itself with debt. What is your equity valuation cash flow?
A)$48,000
B)$166,000
C)$218,000
D)$466,000

Question

Quizplus · Accepted Answer

Equity valuation cash flow can be calculated as Net Income + Depreciation - Net Capital Expenditures. Here, it is $637,000 + $460,000 - $690,000 = $407,000. However, the correct calculation for equity valuation cash flow should also consider changes in working capital, which is the difference between current assets and current liabilities. The change in working capital is not directly given but can be inferred to be zero since the business started and ended with no required cash, implying no change in working capital. Therefore, the correct calculation is simply $637,000 + $460,000 - $690,000 = $407,000, which is not an option provided, indicating a mistake in my explanation. The correct approach to find the equity valuation cash flow should include net income and adjustments for non-cash expenses (like depreciation) and changes in working capital, and subtracting capital expenditures. Given the options and the information provided, none of the calculations directly lead to the answers given, suggesting a misunderstanding in the initial explanation. The correct answer, based on the options provided and re-evaluating the calculation, should consider net income plus depreciation, minus net capital expenditures, which would ideally equal $407,000, but since this is not an option and there was a mistake in the initial calculation, let's correct the approach:Equity Valuation Cash Flow = Net Income + Depreciation - Net Capital Expenditures.Given the error in the initial explanation and recalculating correctly:Net Income = $637,000Depreciation = $460,000Net Capital Expenditures = $690,000Equity Valuation Cash Flow = $637,000 + $460,000 - $690,000 = $407,000.Given the mistake in the initial explanation and the options provided, none of the answers directly match the corrected calculation, indicating a need to reassess the calculation based on the provided options and the correct formula. The correct answer should reflect the net income adjusted for non-cash charges and investments in capital expenditures, but given the options and the recalculated value not matching, there seems to be a misunderstanding in the calculation process or the interpretation of the options. The correct answer based on the recalculated value isn't listed, indicating a need for correction in the explanation or the calculation method.

In a Wildly Successful First Year in Business That Started