Shrives Publishing recently reported $9,750 of sales, $5,500 of operating costs

Question

Shrives Publishing recently reported $9,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. 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 expenditures on fixed assets 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?

A.1716

B.1469

C.1271

D.1650

E.1683

PLEASE SHOW WORK

Explanation / Answer

The correct answer is $ 1,716.

Free cash flow = 2781.25 +1250 + 218.75 -973.44 - 1550 = $ 1,726

$ EBIDTA 4,250 Less depreciation 1,250 EBIT 3,000 Less interest expense 218.75 Earnings before tax 2,781.25 Income tax @ 35% 973.44 Net income 1,807.81

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