Answer: $3762.50
Explanation:
Given the following :
Sales = $13,000
Operating Cost other than Depreciation = $5,500
Depreciation = $1250
Bond value = $3,500
Interest rate = 6.25%
Tax rate = 35%) = 0.35
Expenditure on fixed assets and net operating working capital = $1,550
What was its free cash flow?
Free cash FLOW (FCF) = EBIT(1 - tax rate) + depreciation - ( Expenditure on fixed assets and net operating working capital)
EBIT = Earning before income tax;
EBIT = SALES - Operating Cost other than DEPRECIATION - DEPRECIATION
EBIT = $13000 - $5500 - $1250 = $6250
FCF = $6250(1 - 0.35) + $1250 - $1550
FCF = $6250(0.65) + $1250 - $1550
FCF = $4062.50 + $1250 - $1550
FCF = $3762.50