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20 November, 00:26

Champagne, inc., had revenues of $12 million, cash operating expenses of $8 million, and depreciation and amortization of $1.5 million during 2008. the firm purchased $700,000 of equipment during the year while increasing its inventory by $500,000 (with no corresponding increase in current liabilities). the marginal tax rate for champagne is 30 percent. free cash flow: what is champagne's free cash flow for 2008? $4,000,000 $3,250,000 $2,050,000 $2,500,000

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  1. 20 November, 01:52
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    The free cash flow can be calculated as below:

    Revenue 12000000

    Less: Expense (8000000)

    Less: Depreciation (1500000)

    Earnings Before Tax 2500000

    Less Tax (750000)

    Earnings after tax 1750000

    Add Depreciation 1500000

    Total Cash Earnings 3250000

    Less: Change in Working Capital (500000)

    Less : Purchase of Asset (700000)

    Free Cash Flow 2050000

    Thus Free Cash Flow can be calculated as above.
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