Shrives Publishing recently reported $11,000 of sales, $5,500 of operating costs

Question

Shrives Publishing recently reported $11,000 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? (Round your intermediate and final answers to whole dollar amount.)

$2,463

$2,832

$2,906

$2,069

$2,930

$2,463

$2,832

$2,906

$2,069

$2,930

Explanation / Answer

A.$2,463.

Free cash flow = EBIT (1- tax) + depreciation - (increase in fixed assets and net working capital)

=>4,250 *(1-0.35) + 1250 - 1,550

=>$2,462.50

=>$2,463...(rounded to nearest dollar).

sales $11,000 less:operating cost other than depreciation (5,500) less: depreciation (1,250) operating income (EBIT) 4,250

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