Answer:
BBC's free cash flow is $1,000,000.
Explanation:
Free cash flow is the cash a company generates from its business activities after deducting the cash flows from operations and capital assets. The free cash flow is given by the formula below:
= EBIT × (1 -Tax Rate) + Depreciation & Amortization - Net investment
The parameters are available in the question, what needs to be done is to input those numbers as follows:
Free cash flow = $2,500,000 x (1 - 40%) + $500,000 - $1,000,000
Applying the basic BODMAS rule, you have
Free cash flow = $1,500,000 + $500,000 - $1,000,000
Therefore, BBC's free cash flow is $1,000,000.
