Natura Power Systems recently reported $19,250 of sales, $15,750 of operating co

Question

Natura Power Systems recently reported $19,250 of sales, $15,750 of operating costs other than depreciation, and $900 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 6% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,050 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow?

Explanation / Answer

Net Income Cash flow Sales 19,250 19,250 Operating Expense -15,750 -15,750 Depreciation -900 0 Interest Expense -192 0 Net Income Before Tax 2,408 Tax Expense -843 -843 Net Income 1,565 New Fixed Asset 0 -1,050 Net Opetating Working Capital 0 -300 Total 1,565 1,307 Exceed = 1,565 - 1,307 = $ 258

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