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4 October, 22:03

A firm has sales of $690, EBIT of $300, depreciation of $40, and fixed assets increased by $265. If the firm's tax rate is 40 percent and there were no increases in net operating working capital, what is the firm's free cash flow?

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  1. 4 October, 23:47
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    -$45

    Explanation:

    Given that,

    Sales = $690

    EBIT = $300

    Depreciation = $40

    Tax rate = 40%

    Fixed assets increased by $265.

    Firm's free cash flow:

    = Earnings after tax + Depreciation - Capital Expenditure

    = [EBIT * (1 - Tax rate) ] + $40 - $265

    = [$300 * (1 - 0.40) ] + $40 - $265

    = $180 + $40 - $265

    = - $45

    Therefore, the firm's free cash flow - $45.
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