Question

Sams Publishing recently reported $10,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 40%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,350. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow

Answer 1

Answer:

The free cash flow is $2,300

Explanation:

To compute the free cash flow, we have to apply the formula which is shown below:

= Earning before income and taxes × ( 1 - tax) + amortization & depreciation - capital expenditure - changes in working capital

where,

Earning before income and taxes = Sales - operating cost - depreciation

= $10,750 - $5,500 - $1,250

= $4,000

And other values remain same

Now put these values to the above formula

So, the answer would be equal to

=  $4,000 × (1 - 40%) + $1,250 - $1,350

= $2,300