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9 October, 08:20

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

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  1. 9 October, 08:35
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    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
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