Innovative Designs recently reported $230,000 of sales, $140,500 of operating co

Question

Innovative Designs recently reported $230,000 of sales, $140,500 of operating costs other than depreciation, and $9.200 of depreciation. The company had $35.250 of outstanding bonds that carry a 6.75% interest rate. and its tax rate was 35%· In order to sustain its operations, the firm spent $15.250 on new fixed assets capital expenditures) and invested an additional $6.250 in net operating working capital. What was the firm's free cash flow (FCF)? Your answer should be between 38000 and 42000, rounded to even dollars (although decimal places are okay), with no special characters

Explanation / Answer

Free cash flows = EBIT (1 - Tax rate ) + depreciation - (capital expenditure + net operating working capital)

= ($230000 - $140500 - $9200) (1 - 0.35) + $9200 - ($15250 + $6250)

= $80300 (0.65) + $9200 - $21500

= $52199 + $9200 - $21500

= $39899 or $40000.

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