Free Cash Flow

Question 1

How do you calculate FCFF when you are given Net Income?

Answer 1

FCFF = NI + NCC+[Interest Expense *(1-tax rate)] - FCInv - WCInv

Question 2

How do you calculate FCFE when given Net Income (NI)?

Answer 2

FCFE = Net Income + NCC - FCInv - WCInv + Net Borrowing

Net borrowing = Long & Short term new debt issues -

Long & Short term debt payments

Question 3

How do you calculate Fixed Capital Investment (FCInv) for use in calculating FCFF?

Answer 3

If no long term assets were sold during the yr

FCInv = capital expenditures = ending gross PP&E - beginning gross PP&E

or

FCInv = ending net PP&E - beginning net PP&E + depreciation

Question 4

How do you calculate FCFF when using a Statement of Cash flows ?

Answer 4

FCFF = (NI+NCC-WCinv)+ Int(1-tax rate)-FCInv

= CFO + Int(1-tax rate) - FCInv

Question 5

How do you calculate FCFE when given CFO (Cash Flow from Operations) ?

Answer 5

FCFE = CFO - FCInv + Net Borrowing

Question 6

How do you calculate CFO ( Cash Flow from Operations) ?

Answer 6

= Net Income + Non-Cash Charges - Working Capital Investments

Question 7

How do you calculate FCFF when given EBIT….

Answer 7

FCFF = [EBIT*(1-tax rate)] + Dep - FCInv - WCInv

Question 8

How do you calculate FCFF when given EBITDA?

Answer 8

FCFF = [EBITDA * (1-tax rate)] +(Dep * tax rate) - FCInv - WCInv

Question 9

How do you calculate FCFE when given FCFF?

Answer 9

FCFE = FCFF - [Int*(1-tax rate)] + net borrowing

Net borrowing = long & short term new debt issues -

long & short term debt payments

Question 10

How do you calculate Net Borrowing?

Answer 10

Net borrowing = long & short term new debt issues -

long & short term debt payments

Question 11

How do you calculate WCInv (Working Capital Investments) that is used in FCFE and FCFF formulas?

Answer 11

WCInv is the change in the working capital accounts

WCInv = (Accts Recy₁+Invy₁-AcctsPay₁)-(AcctsRecy₀+Invy₀-AcctsPay₀)

Question 12

What are the two main adjustment differences you need to make when calculating either FCFF or FCFE?

Answer 12

• For FCFF: We add back the interest expense to most formulas b/c it represents a financing cash flow to bondholders that is available to the firm before it makes payments to its capital suppliers
• For FCEE: We generally add back in Net Borrowing.This represents any new long or short term borrowing

Question 13

What is the formula for the DuPont ROE?

Answer 13

Question 14

What is Funds from Operations (FFO) and how is it calculated?

Answer 14

• FFO adjusts reported earnings
• Depreciation is added back under the premise that accounting depreciation often exceeds economic depreciation for real estate

Question 15

How do you calculate the AFFO (Adjusted funds from operations)?

Answer 15

Question 16

What is NOI (Net Operating Income) and how is it calculated?

Answer 16

• The amount of income remaining after subtracting vacancy and collection losses, and operating expenses from potential gross income

Question 17

How are the debt service coverage ratio (DSCR)

and loan to value (LTV) calculated?

Answer 17

Question 18

What is Committed Capital?

Answer 18

amount of funds promised by investors to private equity funds

Question 19

What is Paid-in capital?

Answer 19

the amount of funds actually received from investors

**also referred to as invested capital

Question 20

How do you calculate Distributed Paid-in Capital (DPI)?

Answer 20

It is the cumulative distributions divided by paid-in capital

Question 21

What do you calculate Residual Value to Paid-in capital (RVPI) ?

Answer 21

is the NAV after distributions divided by paid-in capital