Ask Question
BusinessBusiness
14 January, 03:17

Houston Pumps recently reported $220,000 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 35%. 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?

+5
Answers (2)
  1. 14 January, 03:20
    0
    The free cash flow for the firm would be $32,812

    Explanation:

    In this question we have been given the

    total sales = $220,000

    operating cost (without deprecation) = $140,500

    depreciation cost = $9250

    income tax rate = 35%

    capital expenditure (amount invested in fixed asset) = $15,250

    investment made in net working capital = $6850

    Here our first step should be to calculate the EBIT which is the earnings before interest and tax, for calculating this we will subtract the operating and depreciation cost from the total sales of the company,

    EBIT = total sales - operating cost - depreciation

    = $220,000 - $140,500 - $9250

    = $70,250

    After this we will subtract the federal plus income tax from this EBIT to get EBAT,

    EBAT = $70,250 - 35% x $70,250

    = $70,250 - $24,588 (the original amount was $24587.5 but we

    took approximate)

    = $ 45,662

    Now we will add back the depreciation in it and subtract the investment made in capital expenditure and net operating working capital cost (OWCC)

    FREE CASH FLOW = EBAT + Depreciation - Capital expenditure - OWCC

    = $45,662 + $9250 - $15,250 - $ 6850

    = $32,812
  2. 14 January, 03:26
    0
    Answer: $32,813

    Explanation: The amount of funds available in a corporate entity for distribution to all of its security holders is termed as free cash flow to the firm. It is used as a measure of company's profitability after all expenses are paid.

    formula : -

    free cash flow = EBIT + Depreciation - capital expenditure - working capital

    where,

    EBIT = sales - operating cost - depreciation

    = 220,000 - 140,500 - 9,250

    = 70,250

    now putting values into equation : -

    free cash flow = 70,250 (1-35%) + 9,250 - 15,250 - 6,850 = $32,813
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Houston Pumps recently reported $220,000 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $900,000.
Answers (1)
True or false: When you receive a savings bond worth $100, you can cash it for $100 right away.
Answers (2)
in g Management of a local catering company would like the Food Division to transfer 10,000 containers of its final product to the Restaurant Division for $41.00. The Food Division sells the product to customers for $98.00 per unit.
Answers (1)
We say that an economy experience inflation if - prices of all goods have increased. - relative price between capital goods and consumption goods has increased. - GDP deflator this year is smaller than GDP deflator of the previous year.
Answers (1)
Milar Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 7.7 pounds $ 4 per pound Direct labor 0.1 hours $ 20 per hour Variable overhead 0.
Answers (1)
New Questions in Business
The culture of UPS places service to the customer among the company's highest business objectives, which is reflected in their use of information systems to enable customer tracking of their packages.
Answers (1)
Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.
Answers (1)
1. A complaint of sexual harassment by a part-time worker in a hardware business was upheld when the Tribunal found that the employer had failed to take sufficient action in relation to the employee's report of inappropriate behaviour.
Answers (1)
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price With the price floor, consumers are willing to purchase the quantity indicated where the price floor intersects the With the price floor, the
Answers (1)
Choose the best revision of the previous sentence. Because many executives have access to company jets boards of directors have a responsibility to ensure that shareholders are not footing the bill for personal travel.
Answers (1)
Home » Business » Houston Pumps recently reported $220,000 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.
Sign Up Forgot Password?