Question 2 USF Inc., a firm in the travel business, reported earnings before interest and taxes...

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1. The firm had operating lease expenses of $50 million last year and has a commitment to make equivalent payments for the ne

Estimate the Free Cash Flows to the Firm last year. Reminders • Adjusted EBIT = EBIT + Current Portion of Lease Expense - Dep

business accounting

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Answer 1

Answer #1

Estimation of free cash flows to the firm last year.

(Amount in millions)

EBIT of last year - $60

Adjusted EBIT - $60 [$60+$50-$50]

EBIT(1-.4) - $36

Add: Depreciation - + $50

Add: Amortization - nil [since amortization of acquisitions is included in current year it is not required to be added in previous years calculation]

Less:

change in working capital - ($40 ) [120-80]

Capital expenditure - ( $30)

Free cash flows for the firm- $16.00

So, Free cash flows for the firm last year was $16 million.

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