Answer to Question #49635 in Finance for Scott

Question

1. Knickerdoodles, Inc.

Sales COGS Interest Dividends Depreciation Cash Accounts receivables Current liabilities

2004 $ 740 430 33 16 250 70 563 390

2005 $ 785 460 35 17 210 75 502 405

Inventory Long-term debt Net fixed assets Common stock Tax rate
2004 662 340 1,680 700 35%
2005 640 410 1,413 235 35%


What is the free cash flow (FCF) for 2005?
a) $50 b) $245 c) $295 d) $435 e) $515

Answer 1

In corporate finance, free cash flow (FCF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. This may be useful to parties such as equity holders, debt holders, preferred stock holders, convertible security holders, and so on when they want to see how much cash can be extracted from a company without causing issues to its operations.
Free Cash Flow 2005 = EBIT x (1-Tax rate) + Depreciation & Amortization - Changes in Working Capital - Capital expenditure = (785 - 460)*(1 - 0.35) + 210 + 35 - 17 = 435
So, the right answer is d) $435