Answer: Difference between net income and FCF = $746.00
Explanation:
Bonds = $3,200.00
Interest rate ---------- 5.00%
Tax rate --------------- 35.00%
Required capital expenditures (fixed assets) = $1,250.00
Required addition to net operating working capital------------ $300.00
Sales = $9,250.00
Operating costs excluding depreciation -------------- $5,750.00
Depreciation = $700.00
Operating income (EBIT) = $2,800.00
Interest charges = $160.00
Taxable income (EBT) = $2,640.00
Taxes = $924.00
Net income after taxes = $1,716.00
FCF = BIT×(1 – T) + Depreciation – Cap Ex – ΔNet Op WC
FCF = $1,820 + $700 – $1,250 – $300
FCF = $970.00
Difference between net income and FCF = $746.00