You are considering an investment in Cruise, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Cruise earned an EBIT of $202 million, paid taxes of $51 million, and its depreciation expense was $75 million. Cruise's gross fixed assets increased by $70 million from 2012 to 2013. The firm's current assets decreased by $10 million and spontaneous current liabilities increased by $6 million. What is Cruise's operating cash flow, investment in operating capital, and free cash flow for 2013, respectively, in millions?
A)$202, $70, $130
B)$226, $70, $156
C)$226, $54, $172
D)$226, $74, $152

Question

Quizplus · Accepted Answer

Operating cash flow = EBIT + Depreciation - Taxes = $202 + $75 - $51 = $226 millionInvestment in operating capital = Change in gross fixed assets + Change in current assets - Change in spontaneous current liabilities = $70 + (-$10) - $6 = $54 millionFree cash flow = Operating cash flow - Investment in operating capital = $226 - $54 = $172 million

You Are Considering an Investment in Cruise, Inc