Lavalle Design Systems Ltd

Multiple Choice

Lavalle Design Systems Ltd. owns computer equipment that cost $10 million. It expects to use the equipment for 10 years and sell it for $100,000. Lavalle rents everything else. Lavalle generated sales of $10 million in the year just ended and has an operating profit margin of 30%. Lavalle faces a 20% tax rate. During the year working capital was reduced by $4 million and additional equipment worth $3 million was purchased at year end. What was Lavalle's free cash flow for the year assuming straight line depreciation is used?

A) ($3,610,000)
B) $990,000
C) $2,390,000
D) $3,400,000
E) $4,390,000