Consider the following balance sheets and selected data from the income statement of Keith Corporation.

Keith Corporation Balance Sheets
December 31

Assets 2015 2014

Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $29,500 $28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $14,800 $15,000
Total assets $23,000 $21,800
Liabilities and stockholders’ equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $10,000 $10,000
Retained earnings 3,400 2,800
Total stockholders’ equity $13,400 $12,800
Total liabilities and stockholders’ equity $23,000 $21,800

Keith Corporation Income Statement Data (2015)

Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate 40%

a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended
December 31, 2015, using Equation 4.1.
b. Calculate the firm’s operating cash flow (OCF) for the year ended December 31,
2015, using Equation 4.3.
c. Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2015,
using Equation 4.4.
d. Interpret, compare, and contrast your cash flow estimates in parts b and c.

a. NOPAT = EBIT x (1-t)
b. OCF = NOPAT + depreciation
c. FCF = OCF - net fixed asset investment - net current asset investment
Net fixed asset investment = change in net fixed assets + depreciation
Net current asset investment = change in current assets - change in (accounts payable and accruals)