Question

A company has net income of $25 million, interest expense of $2 million, depreciation expense of $4 million, and spent $12 million on capital expenditures. Net new borrowing for the year is $8 million, and the firm is in the 25% tax bracket. In addition, the firm made investments in working capital totaling $2 million. What is free cash flow to equity holders

Answer 1

$23 million

Step-by-step explanation:

Let free cash flow to equity holders be represented by 'FCFE"

FCFE = Net income - Net Capital expenditure - Change in working capital + Net Borrowing

FCFE = Net income - (Capital expenditure - Depreciation) - Change in working capital + Net Borrowing

FCFE = $25 million - ($12 million - $4 million) - $2 million + $8 million

FCFE = $23 million

So, the free cash flow to equity holders is $23 million.