Question
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Lauryn’s Doll Co. had EBIT last year of $44 million, which is net of a depreciation...
Lauryn’s Doll Co. had EBIT last year of $44 million, which is net of a depreciation expense of $4.4 million. In addition, Lauryn’s made $5.25 million in capital expenditures and increased net working capital by $3.3 million. Assume that Lauryn’s has a reported equity beta of 1.4, a debt-to-equity ratio of .7, and a tax rate of 21 percent. What is Lauryn’s FCF for the year?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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Answer:
Lauryn’s Doll Co's EBIT = $44 million
Depreciation expense = $4.4 million
Capital Expenditure = $5.25 million
Increase in Net working capital = $3.3 million
Tax Rate = 21%
Free cash Flow = Operating Cash Flow − Capital Expenditures
Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital
Operating Income = EBIT = $44 million
Taxes = 21% of EBIT = $44 million * 21% = $9.24 million
Operating cash flow = $44 million + $4.4 million - $9.24 Million + $3.3 million = $42.46 million
Free cash Flow = Operating Cash Flow − Capital Expenditures = $42.46 million - $5.25 million
So, FCF = $37.21 million
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