The Trinidad Tire Company reported an operating profit of $100,000 in 2007. Its depreciation expense was $20,000, and it invested $30,000 in new equipment during the year. In addition,
Its accounts receivable decreased by $3,000; its inventory decreased by $10,000; its accounts
Payable increased by $6,000; and its taxes payable decreased by $5,000. If the firm paid taxes
Of $10,000 in 2007, what was its free cash flow?

Question

Quizplus · Accepted Answer

Free cash flow is calculated as operating profit + depreciation - taxes - capital expenditures + changes in working capital. Here, it's $100,000 + $20,000 - $10,000 - $30,000 + ($3,000 + $10,000 + $6,000 - $5,000) = $94,000.

The Trinidad Tire Company Reported an Operating Profit of $100,000