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Vasudevan Inc. recently reported operating income of $3.00 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's capital expenditure was $0.50 million, and net operating working capital decreased by $0.10 million. How much was its free cash flow, in millions?

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Answer:

$2.4 million

Explanation:

EBIT = $3.00 million

Depreciation (D) = $1.20 million

Tax rate (r) = 0.4

CAPEX = $0.50 million

Net operating working capital decrease (Nd) =  $0.10 million

The free cash flow is determined by the following equation:

[tex]C = EBIT*(1-r)+D-CAPEX - Nd\\C=3.00*(1-0.4)+1.20-0.50-0.10\\C=\$2.4\ million[/tex]

Vasudevan Inc. had a free cash flow of $2.4 million.

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