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Hartzell Inc. had the following data for 2018, in millions: Net income = $600; after-tax operating...

Hartzell Inc. had the following data for 2018, in millions: Net income = $600; after-tax operating income [EBIT (1-T)] = $700; and Total assets = $2,000. Information for 2019is as follows: Net income = $825; after-tax operating income [EBIT (1-T)] = $1,450; and Total assets = $2,500. Assume the firm had no excess cash. How much free cash flow did the firm generate during 2019?

a.

$1,150

b.

$1,131

c.

$884

d.

$1159

e.

$950

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Answer #2

Answer:- Option (e): $950

Explanation: Given that,

In 2018,

Net income = $600;

After-tax operating income [EBIT (1-T)] = $700

Total assets = $2,000

In 2019,

Net income = $825

After-tax operating income [EBIT (1-T)] = $1,450

Total assets = $2,500

Net capital investment = Total assets for 2008 - Total assets for 2007

= $2,500 - $2,000

= $500

Free Cash Flow during 2019 = After-tax operating income for 2019 - Net capital investment

Free cash flow during 2019 = $1,450 - $500 = $950

So, Free cash flow generated by company during 2019 is $950

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