Question

Company XYZ, an all-equity firm, reported incremental revenues (net income) of $370 million for the most recent year. The firm had depreciation expenses of $144 million and capital expenditures of $194 million. The company also had an increase in net working capital of $20 million. What is the free cash flow?

Answer 1

$300 million.

Step-by-step explanation:

Because company XYZ is an all-equity firm, so there is no interest expenses incurred by the firm. Free cashflow to firm is calculated as below:

Free cashflow to firm = Net income + Interest expense x (1 - Tax rate) + Depreciation - Working capital investment - Capital expenditure

= 370 + 0 x (1 - Tax rate) + 144 - 20 - 194

= 370 + 0 + 144 - 20 - 194

= 300