[求助]calculate CFO

Undercarriage, Inc.’s cash flow from operations (CFO) in 20X1 was $23 million after Undercarriage paid $16 million in 20X1 to acquire a franchise which it capitalized and amortized over 4 years. Ignoring tax effects, if Undercarriage had expensed the franchise cost in 20X1, CFO in 20X1 would have been:

A) $11 million.

B) $39 million.

C) $7 million.

D) $35 million.

Should CFO be 23 + 16/4 - 16 = 11 million, or 23-16 = 7 million?

mythralf

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发表于 2008-12-4 10:28 | 只看该作者

I think it should be 23-16, because the capitalized cost should be calculated using CFI, and expensed expenditure uses CFO

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weimingosi

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发表于 2008-12-4 10:48 | 只看该作者

if the transaction occured at the end of the year, adjusted CFO should be 23-16 because the amortization had no influence on CFO in 20X1.

But if the transaction occured at the beginning of the year, adjusted CFO should be 23-16/4-16. Because the amortization is non-cash item which should be add back to net income when we are using indierct method to calculate CFO, when expensing it, we should start from subtracting the annual amortization from 23 to get the CFO before adding back the non-cash amortization. Then we should minus the expensed part, which is 16 in this case.

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