Free Cash Flow You are considering an investment in Fivestone, Inc. and want

to evaluate the firms free cash flow. From the income statement, you see that

Fivestone earned an EBIT of $32 million, paid taxes of 25% ($8 million), and its

depreciation expense was $3 million. Fivestones gross fixed assets increased by $16

million from 2016 to 2017. The firms current assets increased by $10 million and

spontaneous current liabilities increased by $6 million.

Calculate Fivestones operating cash flow, investment in operating capital

and free cash flow for 2017.

First calculate Fivestones operating cash flow by:

OCF = EBIT Taxes + Depreciation

Then, Investment in operating capital for 2017 by:

IOC = Gross fixed assets + Net operating working capital

Finally, Fivestones free cash flow for 2017 by:

FCF = Operating cash flow Investment in operating capital