Last year, Ashley Inc. had a NOPAT of $700 and total net operating capital TNOC of...

Last year, Ashley Inc. had a NOPAT of $700 and total net operating capital TNOC of $1800. This year, Ashley's has a NOPAT $900 and total net operating capital TNOC of $2200. What is the free cash flow for this year?

a) $300

b) $600

c) $400

d) $500

e) $700

Solutions

Expert Solution

Solution:
	Answer is d). $500

Working Notes:
	Free cash flow for this year
	= NOPAT of current year - (total net operating capital TNOC current year - total net operating capital TNOC previous year)

	= $900 - ($2200 - $1800)
	= $900 - $400
	= $500



	Basically we use this base FCF formula
Notes:	Free Cash Flow to Firm (FCFF) = EBIT ( 1 -Tax rate) + Depreciation - Capital expenditure - Change in Working Capital



	EBIT ( 1 -Tax rate) = NOPAT
	Capital expenditure =Total net operating capital TNOC current year - total net operating capital TNOC previous year



	And other details are missing hence, in lack of data our formula will be left as below
	Free Cash Flow to Firm (FCFF) = EBIT ( 1 -Tax rate) - Capital expenditure
	= NOPAT of current year - (total net operating capital TNOC current year - total net operating capital TNOC previous year)


Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 7 months ago

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