Houston Pumps recently reported $172,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 25%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $15,250 to buy new fixed assets and to invest $6,850 in net operating working capital. What was the firm's free cash flow

Question

Business

Cade Powell

15 July, 13:02

Houston Pumps recently reported $172,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 25%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $15,250 to buy new fixed assets and to invest $6,850 in net operating working capital. What was the firm's free cash flow

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Answers (1)

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Abby Krause · Answer 1

Free Cash Flow = $4,213

Explanation:

As per the data given in the question,

Firm's free cash flow:

Tax rate = 25%

Net working capital = $6,850

Capital expenses = $15,250

Sales = $172,500

Operating costs other than depreciation = $140,500

Depreciation = $9,250

Operating income = $22,750

Now,

Operating income after tax ($22,750*75%) $17,063

Add: Depreciation $9,250

Less: Capital expenditure $15,250

Less: Working capital $6,850

Free Cash Flow $4,213