1. (22 points) ABC Computer Company shows the following information on its pro forma income
statement and statement of financial position. Tax rate is 40%.
| | 2023 | 2024 | 2025 | 2026 |
|--------------------|--------|--------|--------|--------|
| Sales | | 62,000 | 66,000 | 71,000 |
| Cost of Goods Sold | | 31,000 | 33,000 | 35,000 |
| Depreciation | | 4,200 | 4,600 | 4,900 |
| Interest | | 1,200 | 600 | 900 |
| | 2023 | 2024 | 2025 | 2026 |
| Receivables | 2,000 | 3,000 | 2,000 | 5,000 |
| Inventory | 1,000 | 2,000 | 3,000 | 1,000 |
| Payables | 1,100 | 3,500 | 2,500 | 3,000 |
| Net Fixed Assets | 20,000 | 21,000 | 21,700 | 22,300 |
a. (8pts) Calculate the firm's cash flow from operating activities for 2024, 2025, and 2026.
b. (3.5 pts) Calculate the firm's Net Capital Spending (NCS) for 2024, 2025 and 2026.
c. (3.5 pts) In addition, you are told that the company's cash flow to debtholders and cash flow to
shareholders in the year 2026 will be $9,000 and $4,940, respectively. What will be the increase or
decrease in cash during 2026? Hint: You have two formulas for cash flow from assets (CFFA).
d. (3pts) Explain in words why the net income in 2024 is different from the cash flow generated from the
assets during this year.
e. (4pts) From the company's statement of financial position, you collect that the average inventory in 2025
is $2,000, and the average accounts receivables in 2025 is $3,000. Calculate the Operating cycle in 2025.