Discounted cash flow / ORIGINAL SCENARIO

Unlevered free cash flow

A company has $90 million of EBIT, $18 million of depreciation and amortization, and $26 million of capital expenditures. Its operating working capital increases by $12 million. Assume a 25% tax rate. What is its unlevered free cash flow?

Enter your answer in millions. Operating working capital excludes cash and financing debt.

Try it before the answer →

Worked answer

ufcf: 90 × (1 − 0.25) + 18 − 26 − 12 = 47.5

Tax operating income, add back noncash D&A, subtract reinvestment.

UFCF belongs to all capital providers; financing is reflected in WACC.

Technical follow-ups

Why don’t we subtract interest expense? How would the cash-flow definition and discount rate change for a levered equity DCF?

If growth requires a larger working-capital investment, why might higher revenue growth reduce near-term cash flow?

Follow-up answer guide

Levered cash flow reflects interest and net borrowing and is discounted at cost of equity to equity value. Keep cash-flow definition and discount rate consistent; do not simply swap rates.

A fresh retry

A company has $120 million of EBIT, $24 million of depreciation and amortization, and $35 million of capital expenditures. Its operating working capital increases by $10 million. Assume a 30% tax rate. What is its unlevered free cash flow?

Enter your answer in millions. Operating working capital excludes cash and financing debt.

Inspect replacement inputs

ebit: 120
tax: 0.3
da: 24
capex: 35
nwc: 10

Check the retry bridge

ufcf: 120 × (1 − 0.3) + 24 − 35 − 10 = 63

Original fictional example. Not a report of a specific firm’s interview. Explanations need qualified human review.