The Random Corporation is expected to have EBIT of $800,000 this year. Random's tax rate is about 30%, and will report $70,000 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 12,000. What is Random's free cash flow to the firm for the year?

Random's free cash flow to the firm for the year is $528,000

Step-by-step explanation

To begin with, the free cash flow to the firm is the amount of surplus cash that could potentially be distributed to shareholders and the debt financiers of the company after having provided for new capital expenditure  as well as the  required net working capital investment as denoted by the free cash flow to the firm formula provided below:

FCFF=EBIT*(1-tax rate)+depreciation-change in net working capital-CapEx

EBIT=$800,000

tax rate=30%

EBIT*(1-tax rate)=net operating profit after-tax(NOPAT)

depreciation=$70,000

change in net working capital=$16,000

CapEx=new capital expenditure=$86,000

Note that the net debt would only feature in a free cash flow to equity computation

FCFF=$800,000*(1-30%)+$70,000-$86,000-$16,000

FCFF=$560,000+$70,000-$86,000-$16,000

FCFF=$528,000