R.30 Forecasting FCF

Question 1

FC_INV: Net Fixed Capital Investment

Answer 1

FC_INV = Capital expenditures − Proceeds from sale of long-term asset

Question 2

Free Cash Flow to the Firm

Free Cash Flow to Equity

Value with each model

Answer 2

FCFF is CF available to the firm after operating expenses have been covered and investments in fixed capital and working capital have been made.

FCFE is CF available to common shareholders after lenders (providers of debt) have been paid. Should not be confused with cash flows that common shareholders may receive.

Neither FCFF nor FCFE are impacted by dividend payments or share repurchases.

Question 3

Inputs to Free Cash Flow

Answer 3

Question 4

Common Noncash charges: + or - and location? I can do

Answer 4

• If decrease NI, then add back
• If increases NI, then subtract

Question 5

Net borrowing

Answer 5

Question 6

Working Capital Investment

Answer 6

WCinv = (OCA - OCL)

• Increase in Operating Current Assets (OCA) less Increase in Operating Current Liabilities (OCL)
• OCA excludes cash and equivalents
• OCL excludes notes payable, short-term interest bearing debt, current portion of LTD
• Part of CFO
• Direct relationship w/ liability acct ∆ (increase/decrease liability = same for WCinv)
• Opposite with asset acct ∆ (increase/decrease asset drives opposite in WCinv

Question 7

International Single Stage Model

Non-operating Assets and Firm Value

Answer 7