Wells Water Systems Recently Reported $8,250 of Sales,$4,500 of Operating

question 29

Multiple Choice

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 35%.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) $1,770.00
• B) $1,858.50
• C) $1,951.43
• D) $2,049.00
• E) $2,151.45

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Definitions:

Demand Curve

A graphical representation that shows the relationship between the price of a good and the quantity of that good consumers are willing to purchase at various prices.

Profit-Maximizing Output

The level of production at which a firm achieves the highest possible profit.

Antimacassars

Small pieces of cloth or paper placed over the backs or arms of chairs or sofas to protect them from grease or dirt.

Monopolistic Distributor

A sole provider of a product or service in a particular market, facing little to no competition.