Question

Hartzell Inc. had the following data for 2014, in millions: Net income = $600; after-tax operating income [EBIT (1-T)] = $700; and Total assets = $2,000. Information for 2015 is as follows: Net income = $825; after-tax operating income [EBIT (1-T)] = $725; and Total assets = $2,500. How much free cash flow did the firm generate during 2015?

Answer 1

$225

Step-by-step explanation:

The computation of the free cash flow generated during 2015 is shown below:

As we know that

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

where,

Average tax operating income is $725

And, the net capital investment is

Net capital investment = Total assets for 2015 - Total assets for 2014

= $2,500 - $2,000 = $500

So, the free cash flow is

= $725 - $500

= $225