Bates Motors has the following information for the previous year: Net income = $200; Net operating profit after taxes (NOPAT) = $300; Total assets = $1,000; and Total net operating capital = $800. The information for the current year is: Net income = $500; Net operating profit after taxes (NOPAT) = $400; Total assets = $1,300; and Total net operating capital = $900. What is the free cash flow for the current year?
A) $100
B) $200
C) $300
D) $400
E) $500

Question

Quizplus · Accepted Answer

Free cash flow = NOPAT - (Net investment in operating capital)
Net investment in operating capital = Total net operating capital (current year) - Total net operating capital (previous year) = ($900 - $800) = $100
Free cash flow = $400 - $100 = $300. Therefore, the correct answer is (C) $300.

Bates Motors Has the Following Information for the Previous Year