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aalyn [17]
1 year ago
11

A firm has cash flow from operations of $500 million, interest expense of $40 million, net capital expenditures of $150 million,

net new borrowing of $60 million, and a net increase in working capital of $20 million.  The marginal tax rate is 30%.  What is the free cash flow to the firm
Business
1 answer:
adelina 88 [10]1 year ago
5 0

Answer: $410 million

Explanation:

Cash flow from operation= $500

Interest expense = $40 million

Net capital expenditures = $150 million

Net new borrowing = $60 million, Net increase in working capital = $20 million.

Marginal tax rate = 30%.

The cash flow from operations includes the Net Earnings adjusted for working capital. Also, the net earnings include the impact of interest expense and the tax expense/shield.

Therefore, the cash flow to equity will be:

= Cash Flow from Operations - Capital Expenditure + Net borrowing

Cash flow to equity will now be:

= 500 - 150 + 60

= $410 million

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