Question

If a firm has debit of 40%, a tax rate of 35%, free cash flows of $31, a change in capital expenditures of $20, and a change in net working capital of $5, what is its depreciation expense?

Answer 1

If a firm has debit of 40%, a tax rate of 35%, free cash flows of $31, a change in capital expenditures of $20, and a change in net working capital of $5, what is its depreciation expense: $30.

What is the net working capital?

• Any asset reasonably expected to be sold, consumed, or expended through regular business operations within the current fiscal year, operational cycle, or financial year is a current asset in accounting.
• The difference between a company's current assets and current liabilities is known as net working capital. A company's balance sheet is used to calculate net working capital. The more net working capital you have, the more probable your business will be able to pay its present commitments.
• A business usually has the financial capacity to take care of all of its immediate financial obligations if it has a very high net working capital. In general, a corporation operates more efficiently the bigger its working capital is.
• Net working capital = current assets (less cash) – current liabilities (less debt)

Free Cash =Operating Cash Flow -Change in capital Expenditures -Change in net Working capital

31 =Operating Cash Flow-20-5

Operating Cash flow =31+20+5 =56

Operating Cash Flow =EBIT*(1-Tax Rate)+Depreciation

Depreciation =Operating Cash Flow - EBIT*(1-Tax Rate) =56-40*(1-35%) =30

If a firm has debit of 40%, a tax rate of 35%, free cash flows of $31, a change in capital expenditures of $20, and a change in net working capital of $5, what is its depreciation expense: $30.

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