Question

1

What is the free cash flow of a firm with revenues of $200 million, operating profit margin of 50%, tax rate of 20%, depreciation and amortization expense of $30 million, capital expenditures of $30 million, acquisition expenses of $10 million and change in net working capital of $10 million? Answer in millions, rounded to one decimal place (e. $245.63 = 245.6). Numeric Answer:

2

Answer 1

Answer:-

Q 1)

FCFF = EBIT x ( 1 - tax rate) + Depreciation - FCInv - WCIvn - acquisition expenses
Given
Operating profit margin ( EBIT margin)= 50 %
ie EBIT / sales = 50%
EBIT / $ 200 m = 0.50
EBIT = $ 200 m x 0.5 = $ 100 m
tax rate = 20%
Capital expenditures (FCInv) = $ 30 million
Depreciation & amortization = $ 30 million
Change in net working capital (WCInv) = $ 10 million
Acquisition expenses = $ 10 million

FCFF = $ 100 ( 1 - 0.20) + $30 m - $30 m - $10 m - $ 10 m
FCFF = $ 80 + $ 30 - $ 30 m - $ 10 m - $ 10 m
FCFF = $ 60 million

The FCFF is $ 60 million

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