Question

The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital expenditures are $60, and the increase in net working capital is $30. What is the free cash flow to the firm

Answer 1

Answer:

The FCFF or free cash flow to the firm is $125

Explanation:

The Free cash flow to the firm can be calculated using the follwing formula.

FCFF = EBIT * ( 1 - tax rate ) + Depreciation - Capiatl expenditure - Increase in net working capital

Thus, we plug in the values available to calculate the FCFF.

FCFF = 300 * (1-0.35) + 20 - 60 - 30 = $125