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During the year, the XYZ company paid 350,000 in interest. The company is in the 25%...

During the year, the XYZ company paid 350,000 in interest. The company is in the 25% tax bracket. It paid off $150,000 in notes payable and issued an additional $400,000 in long term debt. The firm paid 125,000 in dividends and bought back $100,000 in common stock. It also increased its short term investments by 60,000. Based on the information above, calculate the FCF for XYZ company

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Answer #1

Solution :- Change in working capital = Payment to outstanding Notes payable + Increase in short-term investment.

= 150000 + 60000

= $ 210000. (represents to increase in the working capital, to be subtracted in the calculation of free cash flow of company).

Free cash flow (FCF) = Net income + Depreciation expense - Change in working capital - Change in capital expenditure.

= 350000 * (1 - 0.25) + 0 - 210000 - 0.

= 262500 - 210000

= $ 52500.

Conclusion :- Free cash flow (FCF) of XYZ company = $ 52500.

(In above given question, Depreciation expense = 0 and Change in capital expenditure = 0).

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