Question

Hartzell Inc. had the following data for 2007, in millions: Net income = $600; after-tax operating income [EBIT (1-T)] = $700; and Total assets = $2,000. Information for 2008 is as follows: Net income = $825; after-tax operating income [EBIT (1-T)] = $1,125; and Total assets = $2,500. How much free cash flow did the firm generate during 2008?

Answer 1

$625

Step-by-step explanation:

Given that,

In 2007,

Net income = $600;

After-tax operating income [EBIT (1-T)] = $700;

Total assets = $2,000

In 2008,

Net income = $825;

After-tax operating income [EBIT (1-T)] = $1,125

Total assets = $2,500

Net capital investment = Total assets for 2008 - Total assets for 2007

= $2,500 - $2,000

= $500

Free Cash Flow during 2008 = After-tax operating income for 2008 - Net capital investment

Free cash flow during 2008 = $1,125 - $500

= $625