Question

Briefly explain adjustments to free cash flow to the firm (FCF) when computing free Cash flow to Equity (FCE)

Answer #1

Free cash flow to equity=Free cash flow to the firm - Interest expense×(1?Tax rate)+ Net borrowing

To find FCFE, therefore, we must reduce FCFF by the after-tax value of interest paid to debtholders and add net borrowing (which is debt issued less debt repaid over the period for which one is calculating free cash flow)

The cash flows (net of taxes) that arise from transactions with creditors and preferred stockholders are deducted from FCFF to arrive at FCFE. FCFE is the amount that the company can afford to pay out as dividends.

Free Cash Flow 2013 = 40000
Free Cash Flow 2014 = 42000
FCF 2015= 44000
FCF 2016 = 46000
FCF2017=48000
WACC=12%
Growth Rate = 2.8%
Determine the Terminal Value of the company for 2013.

Mastrade firm has free cash flow of 3,500,000 USD. When the firm
was unlevered it had a cost of equity of 9%. Then it went for
permanent leverage by borrowing 500,000 USD at 8% interest rate.
Corporate tax rate 40%. What is the WACC of the company? If FCF
increase to 4 million next year, what will be the value of Mastrade
firm?

Essay Question
Free cash flow (FCF) is the basis for determining the value of
an investment and this is very much so when determining the value
of a company. Explain why we can’t rely on Net Income as the basis
for valuing a company and how we start with Net Income from the
Income Statement eventually arrive at FCF.

eBook Horizon Value of Free Cash Flows JenBritt Incorporated had
a free cash flow (FCF) of $72 million in 2019. The firm projects
FCF of $235 million in 2020 and $650 million in 2021. FCF is
expected to grow at a constant rate of 4% in 2022 and thereafter.
The weighted average cost of capital is 10%. What is the current
(i.e., beginning of 2020) value of operations? Do not round
intermediate calculations. Enter your answer in millions. For
example,...

JenBritt Incorporated had a free cash flow (FCF) of $94 million
in 2019. The firm projects FCF of $255 million in 2020 and $640
million in 2021. FCF is expected to grow at a constant rate of 5%
in 2022 and thereafter. The weighted average cost of capital is 8%.
What is the current (i.e., beginning of 2020) value of operations?
Do not round intermediate calculations. Enter your answer in
millions. For example, an answer of $1 million should be...

JenBritt Incorporated had a free cash flow (FCF) of $96 million
in 2019. The firm projects FCF of $250 million in 2020 and $590
million in 2021. FCF is expected to grow at a constant rate of 4%
in 2022 and thereafter. The weighted average cost of capital is 9%.
What is the current (i.e., beginning of 2020) value of operations?
Do not round intermediate calculations. Enter your answer in
millions. For example, an answer of $1 million should be...

JenBritt Incorporated had a free cash flow (FCF) of $94 million
in 2019. The firm projects FCF of $235 million in 2020 and $470
million in 2021. FCF is expected to grow at a constant rate of 4%
in 2022 and thereafter. The weighted average cost of capital is 9%.
What is the current (i.e., beginning of 2020) value of operations?
Do not round intermediate calculations. Enter your answer in
millions. For example, an answer of $1 million should be...

JenBritt Incorporated had a free cash flow (FCF) of $96 million
in 2019. The firm projects FCF of $290 million in 2020 and $610
million in 2021. FCF is expected to grow at a constant rate of 4%
in 2022 and thereafter. The weighted average cost of capital is
10%. What is the current (i.e., beginning of 2020) value of
operations? Do not round intermediate calculations. Enter your
answer in millions. For example, an answer of $1 million should be...

Is this included when computing free cash flows for a project?
Explain why it is or isn't.
Research and Development Costs

The notion of free cash flow (FCF). We defined it as EBITDA less
changes in working capital less capital expenditures. There are
however, other definitions of free cash flow. One is called
unlevered free cash flow. It is defined as cash flow from
operations PLUS interest expense MINUS capital expenditures.
Another is called leveraged free cash flow. It is defined as cash
flow from operations MINUS capital expenditures. Which one is more
similar to our definition of free cash flow...

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