Question

Giglio Inc. has the following information for the previous year: Net income =$400; Net operating profit after taxes (NOPAT) =$500; Total assets =$2,000; and Total operating capital =$1,800. The information for the current year is: Net income = $800; Net operating profit after taxes (NOPAT) =$900; Total assets =$2,300; and Total operating capital =$2,500. What is the free cash flow for the current year? If negative, use the negative sign instead of parentheses, e.g. -130. Your Answer:

Answer 1

The free cash flow for the current year is calculated by subtracting the change in total operating capital from the net operating profit after taxes (NOPAT). With a NOPAT of $900 and an increase in total operating capital of $700 from the previous year, the free cash flow for the current year is $200.

Step-by-step explanation:

To calculate the free cash flow (FCF) for the current year, we first need to understand that free cash flow represents the cash that a company is able to generate after maintaining or expanding its asset base, which is essential for growth. To calculate FCF, one generally subtracts capital expenditures (CapEx) from operating cash flow. However, the information given does not explicitly state the CapEx, but provides Net operating profit after taxes (NOPAT) and changes in total operating capital, which we can use to estimate the free cash flow.

The formula to estimate FCF given the available data would be:

Free Cash Flow = NOPAT - Change in Total Operating Capital

For the current year, NOPAT is $900. To find the change in Total Operating Capital, we subtract the previous year's total operating capital from the current year's total operating capital: $2,500 - $1,800 = $700. Thus, we can now calculate the FCF:

Free Cash Flow = $900 - $700 = $200

Therefore, the estimated free cash flow for the current year is $200.