QUESTION 7 CherriSweets recently reported $335,800 of sales, $100,600 of operati

Question

QUESTION 7

CherriSweets recently reported $335,800 of sales, $100,600 of operating costs other than depreciation, and $15,322 of depreciation. The company had $635,250 of outstanding bonds that carry a 5.95% interest rate, and its federal-plus-state income tax rate was 30%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $120,000 to buy new fixed assets and to invest $7,050 in net operating working capital. What was the firm's free cash flow? Please show your work. round final answer two decimal places

Explanation / Answer

Free Cash flow = EBIT * (1 - Tax Rate) + Depreciation - Capex - Net Working Capital

EBIT = Sales - Operating Cost - Depreciation = 335,800 - 100,600 - 15,322 = $219,878

Free Cash flow = 219,878 * (1 - 30%) + 15,322 - 120,000 - 7050

Free Cash Flow = 153,914.60 + 15,322 - 120,000 - 7050

Free Cash FLow = $42,186.60

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