Question

An analyst following Barlow Energy has compiled the following information in preparation for additional analysis she has to include in a report she has been asked to produce (data is in hundreds of millions of $): Preferred share dividends: $14 Net income available to common: $125 Investment in working capital: $30 Investment in fixed capital: $100 Net new borrowing: $40 Depreciation: $50 Tax rate: 40%. Market value of debt is $600 and interest on this debt is 7.5% The current FCFE for Barlow Energy is closest to:

Answer 1

FCFE: 99

Step-by-step explanation:

FCFE: cash flow from operation - CAPEX + borrowing

we calcualte the cash flwo form operation using the indirect method:

net income - preferred dividends = available for common stock

income = 125 + 14 = 139

net income 139

depreciation expense 50

change in working capital (30)

cash flow from operation: 159

CAPEX will be the long term assets investment

investment on fixed capital 100

CAPEX 100

net borrowing 40

159 -100 + 40 = 99