Ref 11-2
Champagne, Inc., had revenues of $12 million, cash operating expenses of $8 million, and depreciation and amortization of $1.5 million during 2008. The firm purchased $700,000 of equipment during the year while increasing its inventory by $500,000 (with no corresponding increase in current liabilities). The marginal tax rate for Champagne is 30 percent.
-Free cash flow: What is Champagne's NOPAT for 2008?

Question

Quizplus · Accepted Answer

NOPAT (Net Operating Profit After Taxes) = EBIT (Earnings Before Interest and Taxes) * (1 - tax rate)
EBIT = revenues - cash operating expenses - depreciation and amortization
= $12 million - $8 million - $1.5 million
= $2.5 million
NOPAT = $2.5 million * (1 - 0.3)
= $1.75 million
Therefore, the correct answer is A) $1,750,000.

Ref 11-2 Champagne, Inc., Had Revenues of $12 Million, Cash Operating Expenses