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    Practice Questions For Chapter 2 (FCFF & FCFE)

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    Sazzad Reza Durlov 1813576630
    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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    Practice Questions For Chapter 2 (FCFF & FCFE)

    Uploaded by

    Sazzad Reza Durlov 1813576630
    275 views1 page
    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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    Practice Questions for Chapter 2 (FCFF & FCFE) (2)

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    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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    © All Rights Reserved
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    Download as docx, pdf, or txt
    275 views1 page

    Practice Questions For Chapter 2 (FCFF & FCFE)

    Uploaded by

    Sazzad Reza Durlov 1813576630
    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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    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

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