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What is the free cash flow of a firm with revenues of $23million, operating margin...

What is the free cash flow of a firm with revenues of $23 million, operating margin of 37.2%, net margin of 16.8%, tax rate of 11.2%, and reinvestment rate of 46%? Round to the nearest dollar. (e.g., $2,365,564.8 = 2,365,565).

Solutions

Expert Solution

Free cash flow of firm = Net operating profit after tax + depreciation and amortization - capital expenditure - networking capital

or
Free cash flow of firm = Net operating profit after tax (NOPAT) - reinvestment amount

from above details

Net operating profit after tax (NOPAT) = Total revenue * operating profit margin * (1- tax rate)

NOPAT = $ 23000000 * 0.372 * (1-0.112)
= $ 23000000 * 0.372 * 0.888
= $ 7597728

Reinvestment amount = NOPAT * Reinvestment rate

= $ 7597728 * 46 %
= $ 3494955
Free cash flow of firm = Net operating profit after tax (NOPAT) - reinvestment amount

= $ 7597728 - $ 3494955 = $ 4102773


Free cash flow of firm = 4,102,773

jeff jeffy answered 2 years ago
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