Strother Inc. has the following information for the previous year: Net income = $400; Net operating profit after taxes (NOPAT) = $600; Total assets = $2,000; and Total net operating capital = $1800. The information for the current year is: Net income = $900; Net operating profit after taxes (NOPAT) = $800; Total assets = $2,300; and Total net operating capital = $2200. What is the free cash flow for the current year?
A) $300
B) $400
C) $500
D) $600
E) $700

Question

Quizplus · Accepted Answer

Free cash flow is calculated as NOPAT minus the change in total net operating capital. The change in total net operating capital is $2200 - $1800 = $400. Therefore, free cash flow = $800 - $400 = $400.