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17 March, 11:06

A firm has sales of $10,000, EBIT of $3,000, depreciation of $400, and fixed assets increased by $2,000. If the firm's tax rate is 30 percent and there were no increases in net operating working capital, what is the firm's free cash flow? Multiple Choice a. $500 b. $600 c. $7400 d. $1,220

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  1. 17 March, 11:12
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    The correct option is A, free cash flow is $500 as shown by my calculation below.

    Explanation:

    The formula for free cash flows to firm is given as:

    FCFF=EBIT (1-t) + D&A-change in net working capital-capex

    EBIT is earnings before interest and tax

    D is depreciation

    A is amortization

    Capex is capital expenditure

    FCFF=3000 (1-0.30) + 400-2000

    FCFF=$500
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