Greshak Corp. recently reported $18,350 of sales, $9,900 of operating costs othe
ID: 2614640 • Letter: G
Question
Greshak Corp. recently reported $18,350 of sales, $9,900 of operating costs other than depreciation, and S1,250 of depreciation. The company had no amortization charges, it had $4,500 of outstanding bonds that carry a 10.0% interest rate, and its federal-plus-state income tax rate was 30%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $2,850 to buy new fixed assets and to invest $1,625 in net operating working capital. How much free cash flow did Greshak generate? Select one: 0 A($ 120.00). O B. S 415.00 O C. $1,815.00 O D.S 710.00 O E. $1,180.00Explanation / Answer
Free Cash Flow = $1,815
Free Cash Flow = Net Operating cash flow – Additional Capital Expenditures – Net Changes in working capital
Net Operating cash flow
Particulars
Amount ($)
Sales
18,350
Less : Operating Costs
(9,900)
Less : Depreciation
(1,250)
Operating profit before tax
7,200
Less : Tax at 30%
(2,160)
Operating profit after tax
5,040
Add Back : Depreciation
1,250
Net Operating cash flow
6,290
Free Cash Flow = Net Operating cash flow – Additional Capital Expenditures – Net Changes in working capital
Free Cash Flow = $6,290 – 2,850 – 1,625
Free Cash Flow = $1,815
Hence, The Answer is “ C. $1,815 “
Particulars
Amount ($)
Sales
18,350
Less : Operating Costs
(9,900)
Less : Depreciation
(1,250)
Operating profit before tax
7,200
Less : Tax at 30%
(2,160)
Operating profit after tax
5,040
Add Back : Depreciation
1,250
Net Operating cash flow
6,290
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