Madura Inc

question 3

Multiple Choice

Madura Inc.wants to increase its free cash flow by $180 million during the coming year,which should result in a higher EVA and stock price.The CFO has made these projections for the upcoming year:
∙EBIT is projected to equal $850 million.
∙Gross capital expenditures are expected to total to $360 million versus depreciation of $120 million,so its net capital expenditures should total $240 million.
∙The tax rate is 40%.
∙There will be no changes in cash or marketable securities,nor will there be any changes in notes payable or accruals.
What increase in net operating working capital (in millions of dollars) would enable the firm to meet its target increase in FCF?

• A)$ 72
• B)$ 90
• C)$108
• D)$130
• E)$156

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Definitions:

Cash Operating Expenses

Expenses that a company pays out in cash during the operating cycle, excluding non-cash expenses like depreciation.

One-Time Expense

An uncommon or non-recurring charge that companies incur, which does not reflect regular operating activities.

Straight-Line Depreciation

A technique for determining an asset's depreciation by uniformly distributing its cost throughout its lifespan.

Operating Cash Inflow

Cash received by a company during its normal business operations.