Question

Environ Systems is a firm that specializes in cleaning environmental damage (waste disposal) and specialty chemicals. The income statement is reported below:

Revenues	$1,000
- Cost of goods sold	550
- Depreciation	150
Operating Profit (EBIT)	300
- Interest expenses	100
Taxable Income	200
Taxes	60
Net Income	$140

You are also provided with the following information:

• The firm reported capital expenditures of $ 50 million in the most recent year and also made two acquisitions – one for $125 million (using cash) and one for $75 million (using stock).

• The working capital, inclusive of cash, increased from $80 million at the beginning of the year to $105 million at the end of the year; the firm’s cash balance decreased by $15 million during the year and it has no short term debt.

Estimate the free cashflow to the firm for the most recent year.

Your answer should be in millions (input 30 instead of 30,000,000).

Answer 1

Cash provided by operating activities = Net income - Increase in working capital - Decrease in cash

= 140 - 25 - 15

= $100 million

Free cash flow = Cash provided by operating activities – Capital expenditures – Cash dividends

= 100 - 50 - 0

= $50 million

Capital expenditures include purchase of property, plant and equipment only. It does not include purchase of investments or acquisition of other companies.

Kindly comment if you need further assistance. Thanks