Question

Duke Inc. recently reported $13,750 of sales, $5,500 of operating costs other than depreciation, and $1,250...

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

Homework Answers

Answer #1
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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