Section A

ServicePro Ltd generated an operating profit (PBIT) of $5,000,000 last year. Depreciation was $800,000. The company invested $1,200,000 in new non-current assets and working capital increased by $300,000. The corporate tax rate is 20%.

What is the Free Cash Flow to the Firm (FCFF) for ServicePro Ltd?

Free Cash Flow to the Firm (FCFF) is the cash available to all investors (equity and debt) after taxes and reinvestment needs. Calculation: 1. NOPAT = PBIT $\times$ (1 - T) = $5,000,000 \times (1 - 0.20) = $4,000,000 2. Add Depreciation: $4,000,000 + $800,000 = $4,800,000 3. Less Capital Expenditure: $4,800,000 - $1,200,000 = $3,600,000 4. Less Increase in Working Capital: $3,600,000 - $300,000 = $3,300,000.