A company has net operating assets at the start of the year of $422 million. If...

A company has net operating assets at the start of the year of $422 million. If EBIT for the year is $87 million, free cash flow is $42 million and the corporate tax rate is 30%, what are net operating assets at the end of the year?

Expert Solution

Free cash flow (FCF) is the amount of money available to an organization at their complete disposal, after adjusting for the cash payments made for operating the business and servicing its assets. FCF concept ignores noncash expenditure and only accounts for expenses done in cash and the effects of working capital changes.

It is calculated as:

Substituting the values, calculate the amount of Change in Net Working Capital:

The increase in Net Working Capital is $ 18.9 million

Net Working Capital (NWC) is calculated as (Total Operating Assets - Total Operating Liabilities).

An increase in NWC denotes increase in Net Operating Assets.

Thus, Net Operating Assets at the end of the year is (Beginning Operating Assets + Increase in Operating Assets)

Net Operating Asset = $ 422 million + $ 18.9 million = $ 440.9 million

jeff jeffy answered 1 year ago

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