What is the free cash flow of a corporation that generates NOPAT of $1,200,000 with a net investment that increases by $100,000?

What is the free cash flow of a corporation that generates NOPAT of $1,200,000 with a net investment that increases by $100,000?

• A. $1,000,000
• B. $1,100,000
• C. $1,200,000
• D. $1,300,000

Answer: (B)

To determine the free cash flow (FCF) of a corporation, we start with the Net Operating Profit After Tax (NOPAT) and adjust it for net investments in operating capital. Free cash flow is calculated using the following formula: \[ \text{Free Cash Flow} = \text{NOPAT} - \text{Net Investment} \] In this scenario, the corporation generates NOPAT of $1,200,000. The net investment increases by $100,000, meaning that this amount will be deducted from the NOPAT. Now, applying the values to the formula: \[ \text{Free Cash Flow} = \$1,200,000 - \$100,000 = \$1,100,000 \] The resulting free cash flow of $1,100,000 indicates how much cash is available to the company after covering its operating expenses and necessary investments in working capital or fixed assets. This cash can be used for growth initiatives, paying dividends, or reducing debt, which are all crucial aspects for stakeholders. Therefore, the correct choice accurately reflects the computation for free cash flow based on the given NOPAT and net investment.

To determine the free cash flow (FCF) of a corporation, we start with the Net Operating Profit After Tax (NOPAT) and adjust it for net investments in operating capital. Free cash flow is calculated using the following formula:

[ \text{Free Cash Flow} = \text{NOPAT} - \text{Net Investment} ]

In this scenario, the corporation generates NOPAT of $1,200,000. The net investment increases by $100,000, meaning that this amount will be deducted from the NOPAT.

Now, applying the values to the formula:

[ \text{Free Cash Flow} = $1,200,000 - $100,000 = $1,100,000 ]

The resulting free cash flow of $1,100,000 indicates how much cash is available to the company after covering its operating expenses and necessary investments in working capital or fixed assets. This cash can be used for growth initiatives, paying dividends, or reducing debt, which are all crucial aspects for stakeholders.

Therefore, the correct choice accurately reflects the computation for free cash flow based on the given NOPAT and net investment.