Question

The free cash flow to the firm is reported as $275 million. The interest expense to the firm is $60 million. If the tax rate is 35% and the net debt of the firm increased by $33 million, what is the free cash flow to the equity holders of the firm?
a. $269 million
b. $296 million
c. $305 million
d. $327 million

Answer 1

Answer:

269 million

Explanation:

The free cash flow to the firm is 275 million

The interest expense is $60 million

The tax rate is 35%

The net debt of the firm increases by $33 million

Therefore the free cash flow to the equity holders of the firm can be calculated as follows

= 275 million-60 million(1-35/100) + 33 million

= 275 million- 60( 1-0.35) + 33 million

= 275 million- 60(0.65) +33 million

= 275 million - 39 million + 33 million

= 236 million + 33 million

= 269 million