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 $82 million, had a tax rate of 30 percent, and its depreciation expense was $9 million. Fields and Struthers’ gross fixed assets increased by $48 million from 2014 and 2015. The firm’s current assets increased by $36 million and spontaneous current liabilities increased by $24 million. Calculate Fields and Struthers’ operating cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.) Operating cash flow $ m Calculate Fields and Struthers’ investment in operating capital for 2015. (Enter your answer in millions of dollars.) Investment in operating capital $ m Calculate Fields and Struthers’ free cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.)

Answer 1

(a)

EBIT = $82 million

Tax = 30%

Hence, tax = 82 x 30%

= $24.6

Increase in working capital = Increase in current assets - Increase in current liabilities

= 36 - 24

= $12 million

Operating cash flow = EBIT + Depreciation - Tax - Increase in working capital

= 82 + 9 - 24.6 - 12

= $54.4 million

(b)

Investment in operating capital in 2015 = Increase in current assets - Increase in current liabilities

= 36 - 24

= $12 million

(c)

Free cash flow = Operatinfg cash flow - capital expenditure

= 54.4 - 48

= $6.4 million

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answered by: anonymous