Free Cash Flow

Question 1

Dep and Amort- Adjustment to Net Income->

Answer 1

ADD. I/S or CFO

Question 2

Impairment/Write Down- Adjustment to Net Income->

Answer 2

ADD. I/S

Question 3

Gains (losses) on asset sale or early debt retirement- Adjustment to Net Income->

Answer 3

Subtract (Add). I/S

Question 4

Restructuring Expense (income)- Adjustment to Net Income->

Answer 4

Add (Subtract). I/S

Question 5

Deferred Tax Liability- Adjustment to Net Income->

Answer 5

Add. I/S B/S

*If unlikely to reverse

Question 6

Amortization of bond discount (premium) Adjustment to Net Income->

Answer 6

Add (Subtract). CFO

Question 7

Net FC Investment Adjustments

Answer 7

additions - proceeds

Question 8

Investment in Working Capital

Answer 8

WC includes all short term operating assets and libs

Excludes->cash and cash equivs, short term int bearing debt, notes payable, current of long term debt, dividends payable

Question 9

Working Capital Adjustments

Answer 9

direct relationship between changes in libs and changes in cash flow

• > increase in liability account is source of additional cash
• > decrease in liability is use of cash (subtract)

Question 10

Net Borrowing is on only

Answer 10

FCFE

Question 11

Net Borrowing includes

Answer 11

Repayment of:
long term debt
notes payable
current portion of long term debt
(Adding back)
Cash flow = B/S change in debt - amortized discounts + amortized premiums

Question 12

FCFF formula

Answer 12

NI + NCC + int(1-t) - WC inv - FC inv

Question 13

FCFE formula

Answer 13

NI + NCC - WC inv - FC inv + net borrowing

Question 14

FCFE via FCFF

Answer 14

FCFF - Int(1-t) + net borrowing

Question 15

NonCash Charges

Answer 15

pply to both FCFE and FCFF

-adjustments for noncash decrease and increases in NI based on accrual accounting

Question 16

FCFF via CFO

Answer 16

CFO + Int(1-t) - FC inv

Question 17

FCFE via CFO

Answer 17

CFO - FC inv + net borrowing

Question 18

FCFF via EBIT

Answer 18

EBIT (1-t) + dep - WC inv - FC inv

Question 19

FCFF via EBITDA

Answer 19

EBITDA(1-t) + (depr * t) - WC inv - FC inv

Question 20

How many values for FCFF and FCFE

Answer 20

ONE FCFF and ONE FCFE