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Irvine Optical Supplies, Inc. (IOS) has provided you with the following information: ($ in millions)

a) EBIT $220
b) Depreciation & Amortization $ 47
c) Increase/(decrease) in Net Working Capital $12
d) Capital Expenditures $28
e) Tax Rate 21%
Calculate the FCF for IOS?

1 Answer

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Final answer:

The Free Cash Flow (FCF) for Irvine Optical Supplies, Inc. (IOS) is calculated by starting with EBIT, adjusting for taxes, adding back non-cash expenses like depreciation and amortization, and subtracting changes in net working capital and capital expenditures. The FCF for IOS is $180.8 million.

Step-by-step explanation:

To calculate the Free Cash Flow (FCF) for Irvine Optical Supplies, Inc. (IOS), we need to follow these steps:

  • Start with Earnings Before Interest and Taxes (EBIT).
  • Add back Depreciation & Amortization since these are non-cash expenses.
  • Subtract Taxes to get Net Income.
  • Adjust for changes in Net Working Capital and Capital Expenditures to reflect cash flows associated with the company's operational investments.

The calculation would be as follows:

EBIT: $220 million
Less: Taxes (EBIT x Tax Rate) = $220 million x 21% = $46.2 million
Plus: Depreciation & Amortization = $47 million
Less: Increase in Net Working Capital = $12 million
Less: Capital Expenditures = $28 million

The Free Cash Flow (FCF) calculation:

$220 million (EBIT)
- $46.2 million (Taxes)
+ $47 million (Depreciation & Amortization)
- $12 million (Increase in NWC)
- $28 million (Capital Expenditures)
FCF = $180.8 million

Hence, the FCF for IOS is $180.8 million.

User Dey
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