Question

Your firm purchases a machine for $72,662. You purchase the machine using current available cash-balances from a previous period.
You have sales from your retail customers of $289,729. These customers pay with cash.
Your sales from commercial consumers are $31,864. These customers pay with credit.
The cost of your overhead is $17,463 which you pay for with credit.
You have variable costs of $11,658 which you pay for with cash.
Your firm's tax rate is 25%

Finally, you collect on past accounts receivable for $4,536 and pay off past accounts payable for $6,886.

The depreciation schedule is given by:

Depreciation Percentage
Year 1 0.33
Year 2 0.45
Year 3 0.15
Year 4 0.07

What is the free cash-flow in year 1?

Group of answer choices

$135,935.62

$157,845.28

$208,597.62

$186,091.28

Answer 1

Free cash flow is the amount of cash available with company after considering all the cash inflow and outflow for the year

Free cash flow = Net income + Non-cash expenses - Non-cash revenue - Increase in working capital - Capital expenditure incurred.

Calculate net income for year 1
Sales revenue	$321,593.00	289729+31864
Less: Overhead costs	$17,463.00
Less: Variable costs	$11,658.00
Less: Depreciation	$23,978.46	72662*0.33
Income before taxes	$268,493.54
Tax @ 25%	$67,123.39
Net income	$201,370.16
Calculate free cash flow for year 1
Net income	$201,370.16
Add: Depreciation	$23,978.46
Less: Commercial consumers sales	-$31,864.00
Add: Overhead costs on credit	$17,463.00
Add: Cash from past accounts receivable	$4,536.00
Less: Cash paid for accounts payable	-$6,886.00
Less: Purchase of machine	-$72,662.00
Free cash flow in year 1	$135,935.62
Thus, free cash flow in year 1 is $135,935.62