Question

Consider a company with earnings before interest and taxes (EBIT) of $536,000, tax rate of 13%, depreciation and amortization expenses of $71,000, capital expenditures of $69,000, acquisition expenses of $41,000 and change in working capital of $34,000. How much is its free cash flow during that period? Round to the nearest cent.

Answer 1

To calculate the free cash flow, deduct the capital expenditures and change in working capital from EBIT, then add the depreciation and amortization expenses.

Step-by-step explanation:

To calculate the free cash flow, we need to deduct the capital expenditures (CAPEX) and change in working capital from the earnings before interest and taxes (EBIT), then add the depreciation and amortization expenses.

Free cash flow = EBIT - (CAPEX + change in working capital) + depreciation and amortization expenses

Given the following numbers:

• EBIT = $536,000
• Tax rate = 13%
• Depreciation and amortization expenses = $71,000
• Capital expenditures = $69,000
• Acquisition expenses = $41,000
• Change in working capital = $34,000

We can plug in these numbers into the formula:

Free cash flow = $536,000 - ($69,000 + $34,000) + $71,000 = $504,000

The free cash flow during that period is $504,000.