Question

Hartzell Inc. had the following data for 2018, in millions: Net income = $600; after-tax operating income [EBIT (1-T)] = $700; and Total assets = $2,000. Information for 2019 is as follows: Net income = $825; after-tax operating income [EBIT (1-T)] = $1,450; and Total assets = $2,500. Assume the firm had no excess cash. How much free cash flow did the firm generate during 2019? Group of answer choices

Answer 1

The free cash flow of the firm generated during the period of 2019 is $950.

The following formula to be used to determine the free cash flow for the year is as follows:

Free Cash Flow during 2019 = After-tax operating income for the year 2019 - Net capital investment

= $1,450 - ($2,500 - $2,000)

= $1,450 - $500

= $950

Therefore we can conclude that the free cash flow of the firm generated during the period of 2019 is $950.

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