By NEAS - 11/10/2018 11:04:52 PM
FA Module 6 Free cash flow practice exam questions
(The attached PDF file has better formatting.)
[The following scenario applies to the next two questions.]
A firm has the following figures for its GAAP financial statements:
● Operating cash flow = 619
● Interest paid = 54
● Tax rate = 13%
● Non-cash charges (depreciation and amortization) = 78
● Fixed capital expenditures = 191
● Working capital expenditures = 134
● Shareholder dividends paid = 28
● New borrowing during the year = 73
● Debt repayment during the year = 48
Question 6.1: Free cash flow to the firm
What is the free cash flow to the firm?
Solution 6.1: 619 + 54 × (1 – 13%) – 191 = 474.98
(cash flow from operations + interest paid × (1 – the tax rate) – fixed capital investments)
Question 6.2: Free cash flow to equity
What is the free cash flow to equity?
Solution 6.2: 619 – 191 + (73 – 48) = 453
(cash flow from operations – fixed capital investments + net borrowing)
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