Question

Given the following information, calculate free cash flow to equity:

Net Income: $70

Working Capital Investment: $4

Beginning gross fixed assets, $90, Ending gross fixed assets, $136

Beg accumulated depreciation $30, Ending accumulated depreciation $40

Depreciation Exp:$20

Capital expenditures: $45

Net Borrowing: $0

In addition, a piece of equipment with original book value $19 was sold for $10. The equipment book value at time of sale was $2 and gain was classified as unusual.Find Free Cash Flow to Equity.

Answer 1

Given: NI = $70; depreciation = $20;

ending net PP&E = ending gross fixed assets – ending accumulated depreciation = $136 – $40 = $96;

beginning net PP&E = beginning gross fixed assets − beginning accumulated depreciation = $90 − $30 = $60;

WCInv = $4; net borrowings = $0; gains on sale of equipment = $8.

FCInv = ending net PPE − beginning net PPE + depreciation – gain on sale = 96 − 60 + 20 − 8= $48

NCC = depreciation − gain = 20 − 8 = $12

FCFE = NI + NCC − FCInv − WCInv + net borrowings

FCFE = 70 + 12 − 48 − 4 + 0 = $30