Question

Charles Underwood Agency Inc. has an expected net operating profit after taxes, EBIT(1 – T), of $17,400 million in the coming year. In addition, the firm is expected to have net capital expenditures of $2,610 million, and net working capital (NWC) is expected to increase by $30 million. How much free cash flow (FCF) is Charles Underwood Agency Inc. expected to generate over the next year?

Answer 1

Answer:

$14,760 million

Explanation:

The computation of the free cash flow is shown below:

= EBIT × (1 -Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - net capital Expenditure.

= $17,400 + $0 - $30 million - $2,610 million

= $14,760 million

Simply we deduct the changes in net working capital and net capital expenditure from the EBIT (1 - tax rate) so that the accurate value can come.