Question

Lauryn’s Doll Co. had EBIT last year of $57 million, which is net of a depreciation expense of $5.7 million. In addition, Lauryn’s made $4.3 million in capital expenditures and increased net working capital by $2.6 million. Assume that Lauryn’s has a reported equity beta of 1.8, a debt-to-equity ratio of 0.5, and a tax rate of 40 percent. What is Lauryn’s FCF for the year?

Answer 1

Free cash flow (FCF)= $33 million

Step-by-step explanation:

Free cash flow represents the amount that is left to all the providers of capital after the payment of all all operating expenses, working capital and investment in fixed asset expenditures.

It is computed as cash flow made from operation less capital expenditures

For Blur Communications

The Free cash flow

= EBIT(1-T) + depreciation- increase in capital expenditure - increase in working capital

= 57 × (1-0.4) + 5.7 - 4.3 - 2.6

= $33 million