- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 24. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO
CFA Practice Question
Soft Corp.' FCFE should be ______.
A. -$4
B. -$6
C. -$10
Explanation: FCInv = $125 - $100 = $25.
WC2005 = ($24 + $150) - ($101) = $73.
WC2004 = ($17 + $100) - ($91) = $26.
WCInv = $73 - $26 = $47.
t = $25 / $68 = 37%.
Net borrowing = $40 - $20 = $20.
FCFF = NI + NCC + [Int(1 - t)] - FCInv - WCInv = $43 + $5 + [$5(1 - 0.37)] - $25 - $47 = -$20.85.
FCFE = FCFF - [Int(1 - t)] + net borrowing = -$20.85 - [$5(1 - 0.37)] + 20 = -$4.
WC2005 = ($24 + $150) - ($101) = $73.
WC2004 = ($17 + $100) - ($91) = $26.
WCInv = $73 - $26 = $47.
t = $25 / $68 = 37%.
Net borrowing = $40 - $20 = $20.
FCFF = NI + NCC + [Int(1 - t)] - FCInv - WCInv = $43 + $5 + [$5(1 - 0.37)] - $25 - $47 = -$20.85.
FCFE = FCFF - [Int(1 - t)] + net borrowing = -$20.85 - [$5(1 - 0.37)] + 20 = -$4.
User Contributed Comments 3
| User | Comment |
|---|---|
| danlan2 | No need to use Int(1-t), simply do as follows: FCFE=NI+NCC-FCInv-WCInv+net borrowing =43+5-(25+47)+20 =-4 |
| Danny20102 | What is A/R under item "Cash"? |
| LloydBraun7 | Accounts Receivable |