Question

Given the below information, calculate the FCFF:

Revenues = $900
Costs = $500
Depreciation expense = $100
Interest expense = $50
Capital expenditure = $150
ΔWC = $75
Tax rate = 30%

a) $230
b) $250
c) $280
d) $300

Answer 1

None of the provided options for the Free Cash Flow to the Firm (FCFF) calculation is correct. Given the financial data provided and considering the tax effects, the FCFF is calculated to be $120, using the formula: Net Income + Depreciation + Interest*(1-Tax Rate) - Capital Expenditure - ΔWorking Capital.

This correct answer is none of the above.

Step-by-step explanation:

The question is asking to calculate the Free Cash Flow to the Firm (FCFF), given a set of financial data. The formula to calculate FCFF is:

FCFF = Net Income + Depreciation + Interest*(1-Tax Rate) - Capital Expenditure - ΔWorking Capital

First, we calculate the Net Income:

Earnings Before Interest and Taxes (EBIT) : Revenues - Costs - Depreciation = $900 - $500 - $100 = $300

Tax on EBIT : $300 * 30% = $90

Net Income : EBIT - Tax = $300 - $90 = $210

Then, we calculate FCFF:

FCFF = $210 + $100 + $50*(1-0.3) - $150 - $75

FCFF = $210 + $100 + $35 - $150 - $75

FCFF = $120

The correct answer is that none of the given options (a, b, c, or d) are correct. The calculated FCFF is $120.

This correct answer is none of the above.