Module II· DCF — Mechanics & FCFIntermediate
Question
Worked example — MidCap Machinery Inc: revenue $800m, EBIT margin 12%, tax rate 30%, D&A $35m, capex $45m, NWC increase $8m. Calculate UFCF.
Answer
Example — machinery mid-cap
Inputs:
- Revenue: $800m
- EBIT margin: 12%
- Tax rate t: 30%
- D&A: $35m
- Capex: $45m
- ΔNWC: $8m
Calculation:
```
EBIT = $800 × 12% = $96m
NOPAT = $96 × (1 − 0.30) = $67.2m
UFCF = NOPAT + D&A − Capex − ΔNWC
= $67.2 + $35 − $45 − $8 = $49.2m
```
Observation
Capex > D&A means net investment is positive — the company is still growing. The NWC increase is a use of cash (more working capital tied up).
Sanity check
FCF margin $49.2 / $800 = around 6% — typical for a mid-market machinery business in its growth phase.