The situation
Depreciation is ₹12 crore, capex is ₹20 crore, and operating working capital is 15% of revenue. Revenue rises from ₹200 to ₹240 crore.
Your task
How much reinvestment reduces FCFF?
Reveal step-by-step solution
Set up the problem
Net fixed asset investment = ₹20 − ₹12 = ₹8 crore.
Work through the numbers
Working capital rises by 15% × ₹40 crore = ₹6 crore.
Interpret the result
Total reinvestment is ₹14 crore. Compare this with the amount of incremental after-tax operating profit.
What to remember
Distinguish gross capex from capex net of depreciation. Apply the working capital ratio to the sales change.