Answer:
The correct answer is option (D).
Explanation:
According to the scenario, the given data are as follows:
Operating Income (EBIT) = $2,500,000
Depreciation Expense =$500,000
Tax rate = 40%
Net investment = $1,000,000
So, we can calculate the BBC's free cash flow by using following formula:
= EBIT × (1 -Tax Rate) + Depreciation & Amortization - Net investment
Now put these values to the above formula
So, the value would equal to
= $2,500,000 × ( 1 - 40%) + $500,000 - $1,000,000
= $1,500,000 + $500,000 - $1,000,000
= $1,000,000
