Question

This year KRJ Enterprises reported net operating profits after tax of $133 million and it expects its NOPAT to increase by 3% next year. The company also reported net operating assets (NOA) of $663 million and expects NOA to increase by 4% next year. What would be the forecasted amount of free cash flow (in \$ millions) for next year? Present your answer rounded to one decimal place, e.g., \$56.7.

Answer 1

The forecasted amount of free cash flow for next year would be -$552.23 million.

Step-by-step explanation:

To calculate the forecasted amount of free cash flow for next year, we need to use the formula:

Free Cash Flow = Net Operating Profits After Tax (NOPAT) - Increase in Net Operating Assets (NOA).

Given that the current NOPAT is $133 million and it is expected to increase by 3% next year, the forecasted NOPAT for next year would be $133 million + ($133 million * 0.03) = $137.29 million.

Similarly, the current NOA is $663 million and it is expected to increase by 4% next year, the forecasted NOA for next year would be $663 million + ($663 million * 0.04) = $689.52 million.

Substituting these values into the formula, we can calculate the forecasted amount of free cash flow:

Free Cash Flow = $137.29 million - $689.52 million = -$552.23 million.