Answer:
Proforma Earnings: $
Sales 1,033,000
Cost of goods sold (503,000)
Depreciation expense (<u>103,000)</u>
Earnings before tax 427,000
[email protected]% <u> (170,800)</u>
Proforma earnings <u>256,200</u>
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Free Cashflow $
Proforma earnings 256,200
Add: Depreciation <u> 103,000</u>
Free cashflow <u> 359,200</u>
Explanation:
Proforma earnings equal sales minus cost of goods sold minus depreciation minus tax.
Free cashflow is proforma earnings plus depreciation. Since depreciation does not involve movement of cash, it needs to be added back to the proforma earnings in order to obtain free cashflow.