Question

You are considering an investment in Cruise, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Cruise earned an EBIT of $203 million, paid taxes of $50 million, and its depreciation expense was $74 million. Cruise's gross fixed assets increased by $71 million from 2017 to 2018. The firm's current assets decreased by $11 million and spontaneous current liabilities increased by $6.1 million. What is Cruise's operating cash flow, investment in operating capital and free cash flow for 2018, respectively in millions

Answer 1

Answer and Explanation:

The computation is shown below:

Operating cash flow = EBIT - taxes + depreciation expense

= $203 million -$50 million + $74 million

= $227 million

The investment in operating capital is

= Gross fixed asset - decrease in current asset + increase in current liability

= $71 million - $11 million + $6.1 million

= $66.1 million

And, the free cash flow is

= Operating cash flow - investment in operating capital

= $227 million - $66.1 million

= $160.90 million

Answer 2

Answer: See explanation

Step-by-step explanation:

Cruise's operating cash flow would be calculated as:

= EBIT + Depreciation + Taxes

= 203 + 74 - 50

= $227 million

Cruise's investment in operating capital will b calculated as:

= 71 - 11 - 6.1

= $53.9 million

Cruise's free cash flow for 2018 will be calculated as:

= operating cash flow - investment in Operating capital

= 227 - 53.9

= $173.1 million