CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Watson wants to forecast FCFE of Alcan, Inc for the year of 2005. The sales amount of Alcan is $100 million in 2004. After careful research and evaluation, he expects

  • sales growth rate to be 30% for 2005.
  • net income margin to be 25% for 2005.
  • the company to finance incremental fixed and working capital investments with 60% debt - the target debt ratio.
  • incremental FC (investment in FC - Depreciation) to be 40% of sales increase.
  • incremental WC to be 30% of sales increase.

What is the expected FCFE?
A. $11.9 million.
B. -$1.1 million.
C. $24.1 million.
Explanation:

FCFE = NI - (FCInv - Dep) - WCInc + Net borrowing

User Contributed Comments 1

User Comment
danlan2 FCFE
=NI+NCC-(WC+FC)(1-DR)

Since NI=Sales * profit margin, WC and FC are proportional to sales change, and debt ratio for them is 0.6

FCFE=130*0.25-(0.3+0.4)*30*(1-0.6)
=32.5-8.4
=24.1
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