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Vasudevan Inc. recently reported operating income of $3.00 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.60 million. How much was its free cash flow, in millions

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segehood

Answer:

$2.4 million

Explanation:

Given that

Earnings before interest and tax (EBIT) = 3 million

Depreciation = 1.2 million

Tax rate = 40%

Capital expenditure + Net operating working capital (NOWC) = 0.6 million

Recall that

Free cash flow = EBIT (1 - T) + depreciation - ( Capital expenditure + NOWC)

Therefore,

FCF = 3 (1 - 0.4) + 1.2 - 0.6

= 1.8 + 1.2 - 0.6

= 3.0 - 0.6

= $2.4 million

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