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Practice Questions For Chapter 2 (FCFF & FCFE)

This document contains 4 practice questions related to calculating free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). Question 1 asks to calculate net capital expenditures using information on capital expenditures, depreciation, and acquisitions. Question 2 asks to calculate FCFE given information on FCFF, debt repayment, and tax rate. Question 3 asks to estimate next year's FCFF given projections for revenues, margins, working capital, and capital expenditures. Question 4 asks to calculate the effect of a change in working capital on cash flow.

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Sazzad Reza Durlov 1813576630
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1K views1 page

Practice Questions For Chapter 2 (FCFF & FCFE)

This document contains 4 practice questions related to calculating free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). Question 1 asks to calculate net capital expenditures using information on capital expenditures, depreciation, and acquisitions. Question 2 asks to calculate FCFE given information on FCFF, debt repayment, and tax rate. Question 3 asks to estimate next year's FCFF given projections for revenues, margins, working capital, and capital expenditures. Question 4 asks to calculate the effect of a change in working capital on cash flow.

Uploaded by

Sazzad Reza Durlov 1813576630
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Practice Question for Chapter 2 (FCFF & FCFE):

Question 1: In the most recent year, Bata Inc. reported capital expenditures of $80 million and
depreciation & amortization of $ 60 million. It also spent $ 100 million in acquisitions, paying $40 million
in cash and $ 60 million in stock. Estimate the net capital expenditures for the firm for use in computing
the free cash flow to the firm.

Question 2: Dyson Inc. is a manufacturer of vacuum cleaners and you have estimated a FCFF of $50
million for firm for the most recent year. Dyson’s total debt decreased from $100 to $85 million during
the course of the year and it reported interest expense of $10 million for the year. If Dyson’s tax rate is
30%, estimate the FCFE for the most recent year.

Question 3: Intech Inc. generated $20 million in after-tax operating income on revenues of $100 million
during the course of the most recent year. You expect revenues to grow 10% a year next year and
margins to stay stable. The firm’s non-cash current assets are $40 million and its non-debt current
liabilities are $50 million, and non-cash working capital as a percent of revenues is expected to remain
unchanged next year. If the net cap ex is expected to be $10 million next year, what is your estimate of
the FCFF for the next year?

Question 4: You are trying to compute the change in working capital to use in computing free cash flow
to the firm for Zapata Inc. The firm’s total working capital increased from $100 million last year to $120
million this year. However, this working capital includes cash and short term debt; last year’s cash
balance had $30 million in cash and $15 million in short term debt, whereas this year’s cash balance has
$20 million in cash and $25 million in short term debt. What effect did working capital have on your cash
flow this year?
a. Decreased cash flow by $20 million
b. Decreased cash flow by $30 million
c. Decreased cash flow by $35 million
d. Decreased cash flow by $40 million
e. None of the above

Practice Question for Chapter 2 (FCFF & FCFE): Question 1: In the most recent year, Bata Inc. reported capital expenditures o

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