Question

Stein corporation had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?

Answer 1

$425 is the free cash flow which the firm generate during the just-completed year

Step-by-step explanation:

The formula to compute free cash flow is shown below:

EBIT ( 1-tax rate) + Depreciation & Amortization - Change in Net working Capital - Capital Expenditure

where,

EBIT (1 - tax) = NOPAT

Change in Net working capital = Current year Total operating capital - Last year Total operating capital

= $2,500 - $2,000

= $500

And, the Capital Expenditure is not given

So, the free cash flow is

= $925 - $500

= $425