Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 25%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate?

a. $2,260.13

b. $2,373.13

c. $2,152.50

d. $2,491.79

e. $2,050.00

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

a. The division's inventory turnover is 6, whereas the average for its competitors is 8.

b. The division's debt ratio is above the average for other firms in the industry.

c. The division's total assets turnover ratio is below the average for other firms in its industry.

d. The division's basic earning power ratio is above the average of other firms in its industry.

e. The division's DSO (days' sales outstanding) is 40, whereas the average for its competitors is 30.