You are considering an investment in Crew Cut, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23.08 million, paid taxes of $3.92 million (17%), and its depreciation expense was $7.92 million. Crew Cut's gross fixed assets increased by $10.08 million from 2017 to 2018. The firm's current assets increased by $6.08 million and current liabilities increased by $3.92 million. What is Crew Cut's free cash flow for 2018, in millions

Question

Luciana Flores

Business

26 April, 22:56

You are considering an investment in Crew Cut, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23.08 million, paid taxes of $3.92 million (17%), and its depreciation expense was $7.92 million. Crew Cut's gross fixed assets increased by $10.08 million from 2017 to 2018. The firm's current assets increased by $6.08 million and current liabilities increased by $3.92 million. What is Crew Cut's free cash flow for 2018, in millions

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Janetta · Answer 1

Free Cash Flow for the Firm: 14,840‬,000

Explanation:

From the earnings before interest and taxes, we will decreases taxes and add up depreciation as this amount does not represent a cash flow.

Then, we will subtract the net increase in the working capital like this, represent the use of cash to acquire it.

In the last step, we will subtract the capital expenditures which are, the purchase of fixed assets.

EBIT 23,080,000

taxes (3,920,000)

depreciation expense 7,920,000

Working Capital Changes:

6,080,000 - 3,920,000 = (2,160,000)

C A P E X (10,080,000)

Free Cash Flow for the Firm: 14,840‬,000