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Calculate a firm's free cash flow (“FCF") from the Statement of Cash Flows if Net income is $60,000, depreciation expense is $10,000, working capital investment (a use of cash) is $20,000, Cash Flow From Operations is $50,000 and net Capital Expenditures (a use of cash) are $40,000. O a) $10,000 O b) $40,000 c) $0 d) $100,000

Calculate a firm's free cash flow (“FCF") from the Statement of Cash Flows if Net income is $60,000, depreciation expense is $10,000, working capital investment (a use of cash) is $20,000, Cash Flow From Operations is $50,000 and net Capital Expenditures (a use of cash) are $40,000. O a) $10,000 O b) $40,000 c) $0 d) $100,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Calculate a firm’s free cash flow (“FCF”) from the Statement of Cash Flows if Net income is $60,000, depreciation expense is $10,000, working capital investment (a use of cash) is $20,000, Cash Flow From Operations is $50,000 and net Capital Expenditures (a use of cash) are $40,000.

**Calculating Free Cash Flow (FCF)** **Question:** Calculate a firm’s free cash flow (“FCF”) from the Statement of Cash Flows if the following information is provided: - Net income: $60,000 - Depreciation expense: $10,000 - Working capital investment (a use of cash): $20,000 - Cash Flow From Operations: $50,000 - Net Capital Expenditures (a use of cash): $40,000 **Options:** a) $10,000 b) $40,000 c) $0 d) $100,000 **Solution Explanation:** To calculate the Free Cash Flow (FCF), use the following formula: \[ FCF = \text{Cash Flow From Operations} - \text{Capital Expenditures} \] Given data: - Cash Flow From Operations: $50,000 - Net Capital Expenditures: $40,000 Now, substituting the values into the formula: \[ FCF = 50,000 - 40,000 \] \[ FCF = 10,000 \] Thus, the correct answer is: **a) $10,000**
Transcribed Image Text:**Calculating Free Cash Flow (FCF)** **Question:** Calculate a firm’s free cash flow (“FCF”) from the Statement of Cash Flows if the following information is provided: - Net income: $60,000 - Depreciation expense: $10,000 - Working capital investment (a use of cash): $20,000 - Cash Flow From Operations: $50,000 - Net Capital Expenditures (a use of cash): $40,000 **Options:** a) $10,000 b) $40,000 c) $0 d) $100,000 **Solution Explanation:** To calculate the Free Cash Flow (FCF), use the following formula: \[ FCF = \text{Cash Flow From Operations} - \text{Capital Expenditures} \] Given data: - Cash Flow From Operations: $50,000 - Net Capital Expenditures: $40,000 Now, substituting the values into the formula: \[ FCF = 50,000 - 40,000 \] \[ FCF = 10,000 \] Thus, the correct answer is: **a) $10,000**
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