Question

Statement of Cash Flows Year ended: 2019 Operating activities Net Income $312 Adjustments      Depreciation expense 125...

Statement of Cash Flows

Year ended:

2019

Operating activities

Net Income

$312

Adjustments

     Depreciation expense

125

Changes in working capital

     Accounts receivable

(60)

     Inventories

(100)

     Accounts payable

43

     Accrued taxes and expenses

25

     Cash provided by operating activities

$345

Investing activities

Purchases of fixed assets

(250)

     Cash provided by investing activities

($250)

Financing activities

Notes payable

25

Long-term financing issuances

125

Common stock dividends

(140)

     Cash provided by financing activities

$10

Cash and equivalents increase (decrease)

105

Cash and equivalents at beginning-of-year

200

Cash and equivalents at end-of-year

$305

Other information:

  Interest expense

$50

  Tax rate

40%
  1. What is free cash flow to equity (FCFE) for Micro Chef?
    1. $200
    2. $215
    3. $225
    4. $245
  1. What is free cash flow to the firm (FCFF) for Micro Chef?
  1. $105
  2. $125
  3. $130
  4. $135
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Homework Answers

Answer #1

Ques-1)

Formula for Free Cash Flow to Equity(FCFE) :-

FCFE = Net income + Depreciation & Amortization - Capital Expenditure - Change in Net Working Capital + Net Debt issued

FCFE = $312 + $125 - $250 - (60 +100 - 43 - 25) + (25 + 125)

FCFE = $245

Hence, Option D

Ques-2)

Formula for Free Cash Flow to Firm(FCFF) :-

FCFF = Net income + Depreciation & Amortization +Interest Expenses(1-Tax Rate) - Capital Expenditure - Change in Net Working Capital

FCFF= $312 + $125 + 50(1-0.40) - $250 - (60 +100 - 43 - 25)  

FCFF = $125

Hence, Option B

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