Series 79 FCFF (free cash flow to firm)

Question

 

1. Consider the following and calculate free cash flow to the firm (FCFF).

Net borrowing	$328,150
Interest expense	$148,375
Cash flow from operations (CFO)	$1,822,970
Depreciation	$177,370
Fixed capital investment	$451,620
Working capital investment	$237,280

Given a tax rate of 40%, free cash flow to the firm is closest to:

A. $1,637,745

B. $1,371,375

C. $1,460,375

D. $1,721,375

Answer 1

FCFF=CFO+Interest Expense*(1−Tax Rate)-Fixed Capital Investment-Working Capital Investment =$1,822,970+ $148,3758*(1-.4)-$451,620-$237,280

=$1,223,095

Closest answer to this is B-$1,371,375