Problem:
Wells Water Systems recently reported $12,550 of sales, $4,250 of operating costs other than depreciation, and $1,700 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 $1,050 to buy new fixed assets and to invest $475 in net operating working capital.
Task:
Question 1: How much free cash flow did Wells generate? Describe in detail and please show your all work out and formulas.