Bubba Ho Tep Company reported net income of $300 million for the most recent fiscal year

Finance Dec 18, 2020

Bubba Ho Tep Company reported net income of $300 million for the most recent fiscal year. The firm had depreciation expenses of $125 million and capital expenditures of $150 million. Although it had no interest expense, the firm did have an increase in net working capital of $20 million.

What is Bubba Ho-Tep's free cash flow?

Expert Solution

Below is the formula to compute for the corporation's free cash flow.

Free Cash Flow = Net Income − Non − Cash Expenses − Capital Expenditures − Increase in Working CapitalFree Cash Flow = Net Income − Non − Cash Expenses − Capital Expenditures − Increase in Working Capital

I removed a million figures for simplicity.

Free Cash Flow = $300 + $125 − $150 − $20Free Cash Flow = $300 + $125 − $150 − $20

Bubba Ho Tep Company's Free Cash Flow is $255 million

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