You are considering an investment in Fields and Struthers, Inc., and want to eva

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 that Fields and Struthers earned an EBIT of $82 million, had a tax rate of 30 percent, and its depreciation expense was $9 million. Fields and Struthers’ gross fixed assets increased by $48 million from 2014 and 2015. The firm’s current assets increased by $36 million and spontaneous current liabilities increased by $24 million.

What is the operating cash flow?

Calculate Fields and Struthers’ operating cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.)

Calculate Fields and Struthers’ investment in operating capital for 2015. (Enter your answer in millions of dollars.)

Calculate Fields and Struthers’ free cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.)

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 that Fields and Struthers earned an EBIT of $82 million, had a tax rate of 30 percent, and its depreciation expense was $9 million. Fields and Struthers’ gross fixed assets increased by $48 million from 2014 and 2015. The firm’s current assets increased by $36 million and spontaneous current liabilities increased by $24 million.

What is the operating cash flow?

Explanation / Answer

1)Tax :EBIT *tax rate

         = 82 *.30

         = 24.60 million

Operating cash flow = EBIT +depreciation - tax

              = 82 + 9 - 24.6

             = 66.4 million

2)Investment in operating capital =Gross fixed asset +[Increase in current asset -Increase in current liabilities]

            = 48 + [36 -24]

          = 48 + 12

             = 60 million

3)Free cash flow =Operating cash flow - investment in operating capital

            = 66.4 -60

            = $ 6.4 million

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.