Your firm recently reported sales of $20,000,000. The firm’s operating costs are 35% of sales, and depreciation is 28% of operating costs. In 2022, the firm’s total assets were $30,000,000, and current assets accounted for 25% of that value. In 2023, the firm’s net plant and equipment declined by 20%. The firm is in the 25% tax bracket. The firm’s net operating working capital increased by $850,000 from 2022 to 2023.

A. How much can the firm distribute to shareholders without harming operations?
B. Assume the firm’s tax bracket changes to the 30% tax bracket. By how much will the firm’s free cash flow change in this scenario? (Assume all other information from the problem remains the same).

Answer rating: 100% (QA)

A To calculate how much the firm can distribute to shareholders without harming operations we need t... View the full answer