Champagne, Inc., had revenues of $14 million, cash operating expenses of $9.5 million, and depreciation and...

Champagne, Inc., had revenues of $14 million, cash operating expenses of $9.5 million, and depreciation and amortization of $1.6 million during 2018. The firm purchased $650,000 of equipment during the year while increasing its inventory by $450,000 (with no corresponding increase in current liabilities). The marginal tax rate for Champagne is 30 percent. What is Champagne's cash flow from operations for 2018? What is Champagne's free cash flow for 2018?

Expert Solution

Revenue	$ 14.00
Cash operating expense	$ 9.50
Depreciation and amortisation	$ 1.60
EBIT	$ 2.90
Less tax @30%	$ 0.87
Net Profit	$ 2.03

Cash flow from operations for 2018
Net Profit	$ 2.03
Add- Depreciation	$ 1.60
Less- Change in working capital	$ 0.45
Cashflow from operations	$ 3.18

Champagne's free cash flow for 2018
Net Profit	$ 2.03
Add- Depreciation	$ 1.60
Less- Change in working capital	$ 0.45
Less- capital expenditure	$ 0.65
Cashflow from operations	$ 2.53

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