Question #50
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 22
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
On a per share basis for a firm: Sales are $10.00. Earnings per share (EPS) is $4.00. Depreciation is $3.00. After-tax interest is $2.40. Investment in working capital is $1.50. Investment in fixed capital is $2.00. What is the firm's expected free cash flow to the firm (FCFF) per share?
Answer Choices:
A. $5.90
B. $7.50
C. $2.90
Explanation
FCFF = EPS + net non-cash charges + after-tax interest − FCInv − WCInv
FCFF= $4.00 + 3.00 +$2.40 − $2.00 −1.50 = $5.90