Question

Lauryn’s Doll Co. had EBIT last year of $59 million, which is net of a depreciation expense of $5.9 million. In addition, Lauryn’s made $7.3 million in capital expenditures and increased net working capital by $2.4 million. Assume that Lauryn’s has a reported equity beta of 1.7, a debt-to-equity ratio of 0.7, and a tax rate of 40 percent. What is Lauryn’s FCF for the year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Answer 1

Lauryn’s FCF for the year

Free Cash Flow = EBIT(1 – Tax Rate) + Depreciation Expenses – Additional Capital Expenditures - Increase in Net Working Capital

= $59 Million(1 – 0.40) + $5.90 Million - $7.30 Million - $2.40 Million

= [$59 Million x 0.60] + $5.90 Million - $7.30 Million - $2.40 Million

= $35.40 Million + $5.90 Million - $7.30 Million - $2.40 Million

= $31.60 Million

“Therefore, the Lauryn’s FCF for the year would be $31.60 Million”