Given the following information, calculate free cash flow to equity Net income 50 Working capital investment 4 Beginning gross fixed assets 90 Ending gross fixed assets 136 Beginning accumulated dep 30 Ending accumulated dep 40 Dep expense 27 Capital expenditures 65 Net borrowing 0 In addition, a piece of equipment with an original book val of 19 was sold for 10. The equipment had a book val at the time of sale of 2. The gain was classified as unusual. Free cash flow to equity is closest to A 6 B 10 C 18
Gain on Sale of equipment: 10 (Sale Price) - 2 (Book value at time of Sale) = 8 FCFE=NI 50 + Dep 27 - Gain on Sale 8 - CapEx 65 + Sale Price 10 - WCInv 4 = 10 No Net Borrowing. Ans. B
50 + 27 - 65 - 4 + 2 =10
the key to remember is that we are suppose to subtract out Net Capex to calculate FCFE net capex = capex - sale of assets (not book value, actual sale amount)
You guys are correct. Understood from cp explanation. Was making a silly mistake.
ooooo…dats a nasty one. reminds of this morning on a Schweser Equity vignette. It asked for FCFF and FCFE… so I calculate FCFF no prob. Then, I cant get FCFE to match one of the given answers. Turns out that on the info given, they had given “New Borrowings” on one line, and “Debt payments made” on a different line. Well, me being the intellect that I am, remembered that FCFE= FCFF-Int Exp (1-t) + Net Borrowing. When i was glancing the info provided, I saw “New” Borrowings, and interpreted it as “Net” Borrowings. It friggin drove me crazy and it wasn’t until I looked at the question that for the first time ever, they wanted me to obviously subtract debts paid from new borrowings to arrive at “Net” borrowings. A frustrating quick, careless, mistake that you need to be ready for…lol!