Question
In: Finance
AT&T recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and...
- AT&T recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $1,100 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow? Do not round the intermediate calculations.
Solutions
Expert Solution
Statement showing Profit After tax
| Particulars | Amount |
| Sales | 8250 |
| Less : Operating cost | 5750 |
| Less : Depreciation | 1100 |
| Less : Interest ( 3200 x 5%) | 160 |
| PBT | 1240 |
| Tax @ 35% | 434 |
| PAT | 806 |
Statement showing Free cash flow
| Particulars | Amount |
| PAT | 806 |
| Add: Depreciation | 1100 |
| Less : Capital expenditure | 1250 |
| Less : Investment in WC | 300 |
| Free cash flow | 356 |
Thus Net income = 8250$ and Free cash flow = 356$
Thus net income exceed its free cash flow by 7894$ (8250 - 356)
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