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Rocket Medical recently reported $12,500 of sales, $6,500 of operating costs other than depreciation, and $1,250...

Rocket Medical recently reported $12,500 of sales, $6,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%. During the year, the firm had expenditures on fixed assets of $2,500 and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows.

What was its free cash flow? (Round your intermediate and final answers to whole dollar amount.)

PLEASE SHOW THE CALCULATIONS, ESPECIALLY how you find NET INCOME. Thanks!

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Answer #1
Calculation of Free Cash Flow
Particulars Formula Amount
Sales A 12500
Operating Costs B 6500
Depreciation C 1250
Earnings Before Interest and Tax (EBIT) D = A-B-C 4750
Interest E = $3,500*7.5% 262.5
Earnings Before Tax (EBT) F = D-E 4487.5
Taxes G = F*25% 1121.875
Net Income H = F-G 3365.625
Net operating Cash Flows I = H+C+E 4878.125
Investment in Fixed Assets J 2,500
Net Working Capital Required K 1550
Free Cash Flow L = I - J - K 828.1250
Therefore, Free Cahs Flow is $828
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