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Champagne, Inc., had revenues of $12 million, cash operating expenses of $8 million, and depreciation and...

Champagne, Inc., had revenues of $12 million, cash operating expenses of $8 million, and depreciation and amortization of $1.5 million during 2018. The firm purchased $500,000 of equipment during the year while increasing its inventory by $700,000 (with no corresponding increase in current liabilities). The marginal tax rate for Champagne is 30 percent.

Free cash flow: What are Champagne's cash flows associated with investments for 2018?

A) $500,000 B) $700,000 C) $1,200,000 D) None of the above.

Free cash flow: What is Champagne's cash flow from operations for 2018?

A) $2,050,000 B) $2,500,000 C) $3,250,000 D) $4,000,000

Free cash flow: What is Champagne's free cash flow for 2018?

A) $2,050,000 B) $2,500,000 C) $3,250,000 D) $4,000,000

What is the terminal year after-tax cash flow from the recovery of working capital?

A) $0 B) $700,000 C) $500,000 D) None of the above

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Answer #1

What are Champagne's cash flows associated with investments for 2018?

C) $1,200,000

Cash flows associated with investments = Capital Investment + Change in Working Capital

Cash flows associated with investments = 500000 + 700000

Cash flows associated with investments = $1200000

Free cash flow: What is Champagne's cash flow from operations for 2018?

C) $3,250,000

Cash flow from operations= (Revenue - Costs ) * (1 - Tax) + Depreciation * tax

Cash flow from operations= (12000000 - 8000000) * (1 - 0.30) + 1500000 * 30%

Cash flow from operations= $3250000

Free cash flow: What is Champagne's free cash flow for 2018?

A) $2,050,000

FCF = Cash flow from operations - Cash flow from investments

FCF = 3250000 - 1200000

FCF = $2050000

What is the terminal year after-tax cash flow from the recovery of working capital?

B) $700,000

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