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1 January, 02:21

My existing business generate $135000 in EBIT. The corporate tax rate applicable to my business is 35%. Deprecaition reported in the financial statement is $25714. I don't need to spend any more for new equipment; however, I need $20250 additiona cash. I need to purchase $10800 in additional supplies such tableclothes and napkins on credit. It is also estimated that my accrual including taxes and wage payable will increase by $6750. Based on the information provided what will be my Free Cash Flow (FCF) ?

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  1. 1 January, 02:48
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    Answer: $99,964

    Explanation:

    Given that,

    EBIT = $135,000

    Corporate tax rate = 35% of $135,000 = $47,250

    Depreciation = $25,714

    Need additional cash = $20,250

    Additional supplies = $10,800

    Accrual including taxes and wage payable will increase by $6,750

    Operating cash flow = EBIT - Taxes + Depreciation

    = $135,000 - $47,250 + $25,714

    = $113,464

    Investment in operating capital = Additional capital expenditure + Increase in NWC (net working capital)

    = $0 + [ ($20,250 + $10,800) - ($10,800 + $6750)

    = $13,500

    Free Cash Flow (FCF) = Operating cash flow - Investment in operating capital

    = $113,464 - $13,500

    = $99,964
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