Question

You are considering an investment in fields and struthers, Inc, and want to evaluate the firm's free cash flow From the income statement, you see an EBIT of $90 million, had a tax rate of 21 percent, and its depreciation expense was $10 million. Fields and Struthers's NOPAT gross fixed assets increased by $56 million from 2020 and 2021. The frim's current assets increased by $44 million and spontaneous current liabilities increased by $36 million.
1. Calculate Fields and Struthers's NOPAT operating cash flow for 2021.
2. Calculate Fields and Struthers's NOPAT investment in operating capital for 2021.
3. Calculate Fields and Struthers's NOPAT free cash flow for 2021.

Answer 1

Answer:

A.) $81,100,000

B.) $64,000,000

C.) $17,100,000

Explanation:

EBIT = $90 million

Tax rate = 21%

Depreciation = $10 million

gross fixed assets increased by $56 million

current assets increased by $44 million

current liabilities increased by $36 million

A.) Operating Cash flow for 2021

EBIT + Depreciation - (EBIT × Tax rate)

$90, 000,000 + 10,000,000 - (90,000,000×0.21)

100,000,000 - (18,900,000) = $81,100,000

B.) Investment in Operating capital for 2021:

Increase in gross fixed asset + (increase in current asset - increase in liability)

$56,000,000 + ( $44,000,000-$36,000,000)

= $56,000,000 + $8,000,000

= $64,000,000

C.) Free cash flow

Operating Cash flow - investment in operating

$81,100,100 - $64,000,000 = $17,100,000