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The UCI Corporation is expected to have EBIT of $800k this year
The UCI Corporation is expected to have EBIT of $800k this year. UCI tax rate is about 30%, and will report $52,000 in depreciation, will make $86,000 in capital expenditures, and have a $16,000 increase in net working capital this year. Net debt increased by 8,000. What is UCI's free cash flow to the firm for the year?
Expert Solution
UCI's free cash flow to the firm for the year = $510,000
Step-by-step explanation
Free Cash Flow to the Firm (FCFF) is the cash flow available to the common stockholders, debtholders, and preferred stockholders. FCFF is computed using the formula:
FCFF = EBIT (1 - Tax rate) + Depreciation - Fixed capital investment - Working capital investment
As per the information provided in the question, EBIT = $800,000, Tax rate = 30%, Depreciation = $52,000, Fixed capital investment = capital expenditures = $86,000, and working capital investment = increase in net working capital = $16,000.
Therefore,
FCFF = EBIT (1 - Tax rate) + Depreciation - Fixed capital investment - Working capital investment
= $800,000 (1 - 0.30) + $52,000 - $86,000 - $16,000
= $560,000 + $52,000 - $86,000 - $16,000
= $510,000
Therefore, UCI's free cash flow to the firm for the year is $510,000
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