Question

Question 8
In 2019, Fragile Express Delivery spent
$
28.9
$28.9 million on capital expenditures, experienced a decrease in net working capital (including cash) equal to
$
72.8
$72.8 million, and realized
$
26
$26 million in depreciation. Fragile Express Delivery Company’s earnings before interest and taxes (EBIT) was
$
725
$725 million.

Assuming Fragile Express Delivery’s tax rate is
37
%
37%, what is Fragile Express Delivery’s unlevered free cash flow for 2019?


329.05
329.05



526.65
526.65



381.05
381.05



438.85
438.85

Answer 1

To calculate the unlevered free cash flow (UFCF) for Fragile Express Delivery for 2019, we will use the following formula:

\[
\text{UFCF} = \text{EBIT} \times (1 - \text{Tax Rate}) + \text{Depreciation} - \text{Capital Expenditures} - \Delta \text{Working Capital}
\]

Where:
- EBIT = Earnings Before Interest and Taxes = $725 million
- Tax Rate = 37% (0.37)
- Depreciation = $26 million
- Capital Expenditures = $28.9 million
- Δ Working Capital (change in net working capital) = -$72.8 million (since it is a decrease)

Plugging in the values:

1. Calculate EBIT after-tax:
\[
\text{EBIT after-tax} = 725 \times (1 - 0.37) = 725 \times 0.63 = 456.75 \text{ million}
\]

2. Add Depreciation:
\[
\text{D} = 26 \text{ million}
\]

3. Subtract Capital Expenditures:
\[
\text{CapEx} = 28.9 \text{ million}
\]

4. Adjust for the change in Working Capital (since it's a decrease, it effectively adds cash):
\[
\Delta \text{Working Capital} = -72.8 \text{ million}
\]

Now, substitute these into the UFCF formula:
\[
\text{UFCF} = 456.75 + 26 - 28.9 + 72.8
\]

Calculating this step-by-step:
\[
456.75 + 26 = 482.75
\]
\[
482.75 - 28.9 = 453.85
\]
\[
453.85 + 72.8 = 526.65
\]

Thus, Fragile Express Delivery’s unlevered free cash flow for 2019 is:

\[
\text{UFCF} = 526.65 \text{ million}
\]

So the answer is **526.65** million.