You are considering an investment in Cruise, Inc. and want to evaluate the firm's free cash flow....

Question:

You are considering an investment in Cruise, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Cruise earned an EBIT of $205 million, paid taxes of $43 million, and its depreciation expense was $67 million. Cruise's gross fixed assets increased by $78 million from 2007 to 2008. The firm's current assets decreased by $18 million and spontaneous current liabilities increased by $6.8 million. What is Cruise's operating cash flow, investment in operating capital and free cash flow for 2008, respectively in millions?

Operating Cash Flow:

The cash flow which is caused by regular business activities like manufacturing and selling goods ans services is called operating cash flow.It is calculated by adding the non-cash items in the net income.

Answer and Explanation:

Operating cash flows = EBIT - Taxes + Depreciation

Operating cash flows = $205 million - $43 million + $67 million

Operating cash flows = $229 million

Investment in operating capital = Change in fixed assets + Change in current assets - Change in current liabilities

Investment in operating capital = $78 million + (-$18 million) - $6.8 million

Investment in operating capital = $53.3 million

Free cash flow = Operating cash flow - Investment in operating capital

Free cash flow = $229 million - $53.3 million

Free cash flow = $175.70 million


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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