Final answer:
The free cash flow (FCF) of a company with an EBIT of $564,000, a tax rate of 18%, and a reinvestment rate of 49% is $235,864.80.
Step-by-step explanation:
To calculate the free cash flow (FCF) of a company, we need to first compute the net income by subtracting taxes from the earnings before interest and taxes (EBIT). We then need to account for the reinvestment rate to find out how much of the net income is left after reinvesting in the business. Given an EBIT of $564,000 and a tax rate of 18%, the net income can be calculated as follows:
Net Income = EBIT - (EBIT × Tax Rate)
Net Income = $564,000 - ($564,000 × 0.18)
Net Income = $564,000 - $101,520
Net Income = $462,480
Next, we determine the amount of reinvestment by multiplying the net income by the reinvestment rate:
Reinvestment = Net Income × Reinvestment Rate
Reinvestment = $462,480 × 0.49
Reinvestment = $226,615.20
Finally, the free cash flow is the net income minus the reinvestment:
FCF = Net Income - Reinvestment
FCF = $462,480 - $226,615.20
FCF = $235,864.80