What are the free cash flows of a firm with revenues of $600 million, net profit margin of 55%, operating profit margin of 30%, tax rate of 26%, reinvestment rate of 40%, and dividend payout rate of 5%?
a) $53.3 million |
||
b) $66.6 million |
||
c) $79.9 million |
||
d) $86.6 million |
||
e) $93.2 million |
Operating profit = Revenue * Operating profit margin = 600*30% | 180 | |
Re-investment rate = ( Capital expenditure - Depreciation + Change in working capital ) / (Operating profit*(1-tax%)) | ||
40% = ( Capital expenditure - Depreciation + Change in working capital ) / (180*(1-26%)) | ||
40% = ( Capital expenditure - Depreciation + Change in working capital ) / 133.2 | ||
( Capital expenditure - Depreciation + Change in working capital ) = 40%*133.2 | 53.3 | |
Free cash flows = Operating profit*(1-tax%) - ( Capital expenditure - Depreciation + Change in working capital ) = 180*(1-26%) - 53.3 | 79.9 | Million |
Get Answers For Free
Most questions answered within 1 hours.