A firm has sales of $690, EBIT of $300, depreciation of $40, and fixed assets increased by $265. If the firm's tax rate is 40 percent and there were no increases in net operating working capital, what is the firm's free cash flow?

Question

Quizplus · Accepted Answer

Free cash flow is calculated as: EBIT(1-Tax rate) + Depreciation - Increase in Fixed Assets. Here, EBIT(1-0.4) = $180, Depreciation = $40, Increase in Fixed Assets = $265. So, FCF = $180 + $40 - $265 = -$45.

A Firm Has Sales of $690, EBIT of $300, Depreciation