Tater and Pepper Corp. reported free cash flows for 2015 of $59.1 million and in

Question

Tater and Pepper Corp. reported free cash flows for 2015 of $59.1 million and investment in operating capital of $42.1 million. Tater and Pepper incurred $15.6 million in depreciation expense and paid $21.1 million in taxes on EBIT in 2015. Calculate Tater and Pepper’s 2015 EBIT. (Enter your answer in millions of dollars rounded to 1 decimal place.)
Tater and Pepper Corp. reported free cash flows for 2015 of $59.1 million and investment in operating capital of $42.1 million. Tater and Pepper incurred $15.6 million in depreciation expense and paid $21.1 million in taxes on EBIT in 2015. Calculate Tater and Pepper’s 2015 EBIT. (Enter your answer in millions of dollars rounded to 1 decimal place.)
Tater and Pepper Corp. reported free cash flows for 2015 of $59.1 million and investment in operating capital of $42.1 million. Tater and Pepper incurred $15.6 million in depreciation expense and paid $21.1 million in taxes on EBIT in 2015. Calculate Tater and Pepper’s 2015 EBIT. (Enter your answer in millions of dollars rounded to 1 decimal place.)

Explanation / Answer

Free cash flow = NOPAT - net investment in operating capital

59.1 million = NOPAT - 42.1 million

NOPAT =59.1million + 42.1 million

= 101.2 million

Tax rate = tax paid / EBIT*

=21.1 million/EBIT

*In question it says that tax is paid on EBIT. Hence tax rate is calculated as tax paid / EBIT. In normal case tax is calculated on EBT.

NOPAT = post tax EBIT

=EBIT*(1-tax rate)

101.2 million = EBIT*(1-(21.1million/EBIT))

101.2 million = EBIT*((EBIT- 21.1 million)/EBIT)

101.2 million =EBIT- 21.1million

EBIT= 101.2 million + 21.1million

=$122.3 million

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