A firm reports that in a certain year it had a net income of $146 million, depreciation expenses of $19 million, capital expenditures of $56 million, and Net Working Capital decreased by $7 million

Finance Apr 19, 2021

A firm reports that in a certain year it had a net income of $146 million, depreciation expenses of $19 million, capital expenditures of $56 million, and Net Working Capital decreased by $7 million. What is the firm's free cash flow for that year?

Expert Solution

Computation of Firm's Free Cash Flow for the Year:

Free Cash Flow = NOPAT + Depreciation & Amortization - CAPEX - Change in Net Working Capital

Here,

NOPAT = Net Operating Profit after Taxes = $146 million

Depreciation & Amortization = Depreciation Expenses = $19 million

CAPEX = Capital Expenditure = $56 million

Change in Net Working Capital = Decrease in Working Capital = $7 million

Free Cash Flow = $146 millions + $19 millions - $56 millions - (-$7 millions) = $116 millions

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