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FA Module 6 Free cash flow practice exam questions


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By NEAS - 11/10/2018 11:04:52 PM


FA Module 6 Free cash flow practice exam questions

(The attached PDF file has better formatting.)

[The following scenario applies to the next two questions.]

A firm has the following figures for its GAAP financial statements:

●    Operating cash flow = 619
●    Interest paid = 54
●    Tax rate = 13%
●    Non-cash charges (depreciation and amortization) = 78
●    Fixed capital expenditures = 191
●    Working capital expenditures = 134
●    Shareholder dividends paid = 28
●    New borrowing during the year = 73
●    Debt repayment during the year = 48

Question 6.1: Free cash flow to the firm

What is the free cash flow to the firm?

Solution 6.1: 619 + 54 × (1 – 13%) – 191 = 474.98

(cash flow from operations + interest paid × (1 – the tax rate) – fixed capital investments)

Question 6.2: Free cash flow to equity

What is the free cash flow to equity?

Solution 6.2: 619 – 191 + (73 – 48) = 453

(cash flow from operations – fixed capital investments + net borrowing)