Question

$1,000.00 $750.00 Revenues - Operating Expenses (includes $150 million in depreciation) EBIT - Interest Expenses Taxable income - Taxes Net Income $250.00 $50.00 $200.00 $60.00 $140.00 Balance Sheet: Start of year Cash $- Current liabilities Other Current Assets $1,000 Debt Fixed Assets $1,250 Equity Total $2,250 $500 $250 $1,500 $2,250 Assuming that this company will maintain its existing after-tax return on capital next year and that it expects operating income to grow 6% over the year, estimate the expected free cash flow to the firm next year. (The company's effective tax rate this year is not expected to change next year) A. $58.30 B. $74.20 C. $90.10 D. $153.70 Keynote

can someone help please

Grove Inc. is a publicly-traded chemical company that reported the following financial statements for the most recent year.

Income Statement: Most Recent Year (in $ millions)

Answer 1

Current year EBIT = $250

tax rate = 60/200 = 30%

So, NOPAT = EBIT*(1-t) = 250*.7 = $175

Return on capital = NOPAT/(Debt+equity) = 175/(250+1500) = 10%

growth rate = 6%

So, reinvestment rate = growth rate/ROC = 0.06*.1 = 60%

So, NOPAT next year = NOPAT0*(1+g) = 175*1.06 = $185.50

So, FCFF = NOPAT*(1- reinvestment rate) = 185.50*(1-0.6) = $74.20

So, option B is correct.