Question 3.

Company X finances only with debt and common equity (i.e., no preferred stock). Last year, Company X had $4.5 million in Sales, $3 million in operating income and $500,000 in depreciation expense. Its interest expense was $1,250,000 and its corporate tax rate was 37%. At year-end, it had $3,750,000 in current assets, $600,000 in accounts payable, $500,000 in accruals, $2,000,000 in notes payable, and $7,000,000 in net plant and equipment. The firm has no other current liabilities. Assume Company Xs only noncash item was depreciation. You don't necessarily need to use any formulas, but you should show your work to receive full credit.

A). What is the company's Net Income? Create an income statement to solve.

B). What was its net operating working capital?

C). What was its net working capital?

D). Assume the company had $6 million in net plant and equipment over the prior year and that its net operating working capital has remained constant over time. What is the companys free cash flow (FCF) for the year that just ended?