Gustav Co. reported $204400 of sales, $134550 of operating costs other than depreciation, and $8040 of depreciation. The company had $33150 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 0.40 . In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $14450 to buy new fixed assets and to invest $6000 in net operating working capital (ΔNOWC). What was the firm's free cash flow?

 Firm's free cash flow is $24576

Step-by-step explanation

Calculation of Free cash flow:

Sales.................................................................................................204400

less: Operating costs other than depreciation.............-134550

less: Depreciation........................................................................-8040

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Before tax Operating income.........................................................61810

Less: tax @0.40................................................................................-24724

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After-tax operating income......................................................37086

Add: Depreciation........................................................................8040

less: investment in fixed assets...............................................-14550

less: investment in net operating capital.............................-6000

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Free cash flow...................................................................................24576

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So Firm's free cash flow is $24576

Note: Depreciation is first deducted as it is tax deductible, but again it would be added as it is non cash expenditure.