Question

Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes of $1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amount of the free cash flow?

Answer 1

Answer:

free cash flow is $31167.35

Step-by-step explanation:

given data

net income = $42,500

depreciation expense = $1,800

interest expense = $900

taxes = $1,600

net working capital = $2,300

to find out

What is the amount of the free cash flow

solution

we know that FCF free cash flow formula that is

FCF = Net income + depreciation - net working capital - capital expenditures + interest expense × ( 1 - tax rate)     ........................1

here tax rate is calculate as

tax rate = tax paid ÷ (net income + taxes paid)

so here from equation 1 we get FCF

free cash flow =42,500 + 1,800 - 2,300 - 11,700 + 900 × (1 - $\frac{1600}{1600+42500}$)

free cash flow = 31167.35

so free cash flow is $31167.35