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In the current year, a company paid interest of $40,000, had net capital expenditures of $300,000, and issued net new debt of $75,000. In addition, the company reported cash flow from operating activities of $600,000, cash flow from investing activities of ($250,000), and cash flow from financing activities of $65,000. The marginal tax rate is 35%. Compute the free cash flow to the firm. In the current year, a company paid interest of $40,000, had net capital expenditures of $300,000, and issued net new debt of $75,000. In addition, the company reported cash flow from operating activities of $600,000, cash flow from investing activities of ($250,000), and cash flow from financing activities of $65,000. The marginal tax rate is 35%. Compute the free cash flow to the firm.

Answer :

Answer:

Free cash flow to the firm = $326,000

Explanation:

The free cash flow to the firm can be computed using the following formula:

Free cash flow to the firm = Cash flow from operating activities + (Interest paid * (100% - Tax rate)) - Net capital expenditures ............... (1)

Where:

Cash flow from operating activities = $600,000

Interest paid = $40,000

Tax rate = 35%

Net capital expenditures = $300,000

Substituting the values into equation (1), we have:

Free cash flow to the firm = $600,000 + ($40,000 * (100% - 35%)) - $300,000 = $326,000

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