Question

Consider a company with earnings before interest and taxes (EBIT) of $682,000, tax rate of 16%, and reinvestment rate of 59%. How much is its free cash flow during that period? Round to the nearest cent.

Answer 1

The free cash flow of the company during that period is $337,814.80.

Step-by-step explanation:

The free cash flow of a company can be calculated by multiplying the earnings before interest and taxes (EBIT) by (1 - tax rate), and then multiplying it by the reinvestment rate.

In this case, the EBIT is $682,000 and the tax rate is 16%. So, the taxable income is (1 - 0.16) * $682,000 = $573,120.

Next, we need to calculate the free cash flow by multiplying the taxable income by the reinvestment rate. The reinvestment rate is 59%, so the free cash flow is $573,120 * 0.59 = $337,814.80.

Therefore, the company's free cash flow during that period is $337,814.80.