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25 July, 21:52

A firm has cash flow from operations of $500 million, interest expense of $40 million, net capital expenditures of $150 million, net new borrowing of $60 million, and a net increase in working capital of $20 million. The marginal tax rate is 30%. What is the free cash flow to the firm

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  1. 25 July, 22:16
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    Answer: $410 million

    Explanation:

    Cash flow from operation = $500

    Interest expense = $40 million

    Net capital expenditures = $150 million

    Net new borrowing = $60 million, Net increase in working capital = $20 million.

    Marginal tax rate = 30%.

    The cash flow from operations includes the Net Earnings adjusted for working capital. Also, the net earnings include the impact of interest expense and the tax expense/shield.

    Therefore, the cash flow to equity will be:

    = Cash Flow from Operations - Capital Expenditure + Net borrowing

    Cash flow to equity will now be:

    = 500 - 150 + 60

    = $410 million
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Home » Business » A firm has cash flow from operations of $500 million, interest expense of $40 million, net capital expenditures of $150 million, net new borrowing of $60 million, and a net increase in working capital of $20 million. The marginal tax rate is 30%.
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