Catering corp. reported free cash flows for 2008 of $8.01 million and investment in operating capital of $2.01 million. catering listed $1.01 million in depreciation expense and $2.01 million in taxes on its 2008 income statement. what was catering's 2008 ebit?

EBIT = $11.02 million.

Explanation:

Firstly, let recall the formula for free cash flow (FCF):

FCF = NI + NCC + Int x (1 - t) - WCInV - FCInv, where:

NI: Net income.

NCC: Non-cash charge, which is depreciation expense in this case;

Int: Interest expense, which is 0 in this case;

t: Tax rate

WCInV: Working capital investment

FCInv: Fixed capital investment

Now let transform the above formula a bit:

8.01 = NI + Int x (1 - t) + NCC - WCInV - FCInv

       = (EBIT - Int) x (1 - t) + Int x (1 - t) + NCC - WCInV - FCInv

       = (EBIT - 0) x (1 - t) + 0 x (1 - t) + NCC - WCInV - FCInv

       = EBITx (1 - t) + NCC - WCInV - FCInv

       = EBIT - Tax expense + NCC - WCInV - FCInv

       = EBIT - 2.01 + 1.01 - 2.01

Solve the equition we get EBIT = $11.02 million.

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