- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 28. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO
CFA Practice Question
Watson is planning to value Alcan, Inc for the year of 2011. The financial information Watson has assembled for his valuation is as follows (in millions):
- EBITDA: 100.
- Interest expense: 20.
- Depreciation: 30.
- Income tax rate: 35%.
- Investment in working capital: 15.
- Investment in fixed capital: 25.
- Net borrowing: 15.
What is the FCFF for the company?
A. $44.5 million.
B. $14.5 million.
C. $35.5 million.
Explanation: FCFF = EBITDA (1 - Tax rate) + NCC (Tax rate) - FCInv - WCInv = 100 x (1 - 0.35) + 30 x 0.35 - 25 - 15 = $35.5 millions.
User Contributed Comments 3
| User | Comment |
|---|---|
| danlan2 | Plus NCC*Tax rate, not minus NCC*Tax rate |
| shiva5555 | What is NCC? |
| janis36 | Non-Cash Charges |