Question

Calculate Apple's free cash flow if it has net operating profit after taxes of $60,000, depreciation...

Calculate Apple's free cash flow if it has net operating profit after taxes of $60,000, depreciation expense of $10,000, net fixed asset investment requirement of $40,000, a net current asset requirement of $30,000, and a tax rate of 30%.
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Answer #1

Free Cash Flow = Net Operating Profit after Tax - Net Investment

Where ,

Net Operating Profit after Tax = $60,000 (Given)

Net Investment = Capital Expenditure - Depreciation + Changes in Working Capital

Where,

Capital expenditure = $40,000

Depreciation = $10,000

Changes in working capital =Net current assets = $30,000

Net Investment = $(40,000-10,000+30,000)

= $60,000

Therefore,

Free Cash Flow = Net operating profit after tax - Net Investment

= $(60,000 - 60,000)

= NIL

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