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.