Question

You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm’s free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $96 million, had a tax rate of 21 percent, and its depreciation expense was $8 million. Fields and Struthers's NOPAT gross fixed assets increased by $62 million from 2020 and 2021. The firm’s current assets increased by $50 million and spontaneous current liabilities increased by $42 million. Calculate Fields and Struthers’s NOPAT operating cash flow for 2021. (Enter your answer in millions of dollars rounded to 2 decimal places.) Calculate Fields and Struthers’s NOPAT investment in operating capital for 2021. (Enter your answer in millions of dollars.)

Answer 1

Fields and Struthers’ operating cash flow for 2021.

Operating cash flow = EBIT(1 – Tax Rate) + Depreciation Expenses

= $96.00 Million(1 – 0.21) + $8.00 Million

= $75.84 Million + $8.00 Million

= $83.84 Million

Fields and Struthers’ investment in operating capital for 2021.

Investment in operating capital = Change in Gross fixed assets + Change Net operating working capital

= $62.00 Million + [$50.00 Million - $42.00 Million]

= $62.00 Million + $8.00 Million

= $70.00 Million

Fields and Struthers’ free cash flow for 2021.

Free Cash Flow = Operating cash flow – Investment in operating capital

= $83.84 Million - $70.00 Million

= $13.84 Million