A firm reports EBIT of $100 million.The income statement shows depreciation of $20 millions.If the tax rate is 35% and total capital expenditures and increases in working capital total $10 million,what is the free cash flow to the firm?

Question

Quizplus · Accepted Answer

Free Cash Flow to the Firm (FCFF) is calculated as: FCFF = EBIT(1 - Tax Rate) + Depreciation - Capital Expenditures - Increases in Working Capital. Plugging in the values: FCFF = $100 million * (1 - 0.35) + $20 million - $10 million = $65 million + $20 million - $10 million = $75 million.

A Firm Reports EBIT of $100 Million