Question

Eagle Products' EBIDDA is $500, its tax rate is 21%, depreciation is $30, capital expenditures are $80, and the planned increase in net working capital is $10. What is the free cash flow to the firm?

Answer 1

The free cash flow to the firm (FCFF) for Eagle Products is $335 million, calculated by taking its EBITDA and making adjustments for taxes, depreciation, capital expenditures, and the planned increase in net working capital.

Step-by-step explanation:

The free cash flow to the firm for Eagle Products is calculated by taking its EBITDA, adjusting for taxes, subtracting capital expenditures and the planned increase in net working capital, and adding back any depreciation (since it's a non-cash expense). Here's the calculation:

• EBITDA: $500 million
• Taxes (21% of EBITDA): $500 million * 21% = $105 million
• After-tax EBITDA: $500 million - $105 million = $395 million
• Depreciation: $30 million (added back since it's a non-cash charge)
• Capital expenditures: $80 million
• Planned increase in net working capital: $10 million

The free cash flow to the firm (FCFF) would therefore be:

FCFF = After-tax EBITDA + Depreciation - Capital Expenditures - Increase in Working Capital

FCFF = $395 million + $30 million - $80 million - $10 million = $335 million.