Westerly Inc. is a publicly traded company that generated $1000 million in operating income in the most recent year, after taking a depreciation charge of $200 million. The company had capital expenditures of $500 million during the year and its working capital increased by $120 million. If the effective tax rate for the company was 40% for the year, what is the FCFF (Free Cash flow to the Firm) for the most recent year

Free cash flow to the firm = $180million

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

= 1000 × (1-0.4) + 200 - 500 - 120

= $180 million

Free cash flow to the firm = $180million

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