Houston oil and gas recently reported $185,250 of sales, $140,500 of operating costs other than depreciation and 9,250 of depreciation. The company has $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal plus state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows the firm was required to spend $15,250 to buy new fixed assets and go invest $6,850 in net operating working capital.

A. Calculate the firms EBIT and free cash flow and be sure to show the steps taken to arrive at your answers.

B. Describe a situation for a company where having a negative FCF is not necessarily a bad occurance.