Duke Inc. recently reported $13,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciations. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. during the year, the firm had expenditure on fixed assets and increase in net operating working capital that totaled $1,550,which support the firm's operations and future growth. What was its free cash flow?
A) 4,250
B) 4,350
C) 4,400
D) 4,450
Net Operating Profit After Tax (NOPAT) |
NOPAT = (Sales - Operating Costs - Depreciation) x (1 - Tax rate) |
NOPAT = ($13,750 - $5,500 - $1,250) x (1 - 0.35) |
NOPAT = $7,000 x 0.65 |
NOPAT = $4,550 |
Free Cash Flow (FCF) |
Free Cash Flow = NOPAT + Depreciation Expenses - Investments in fixed assets -I ncrease in net operating working capital |
Free Cash Flow = $4,550 + $1,250 - $1,550 |
Free Cash Flow = $4,250 |
Hence, the firm's free cash flow will be $4,250 |
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