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Cathey Corporation currently has sales of $1,000, which are expected to grow by 10% from year to year! and by 4% from yearl t
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Answer #1

FCF for year 2 = $58.08

Growth in FCF 2 = 57.0%

Year

0

1

2

Growth rate in sales

10%

4%

Sales

1000

1100

1144

NOPAT (sales *7%)

77

80.08

Operating capital (sales *50%)

510

550

572

Investment in Operating capital (operating capital of 1 – operating capital of 0)

40

22

FCF (NOPAT – investment in operating capital)

37

58.08

Growth in FCF

57.0%

Growth in FCF 2= (58.08-37)/37 = 57.0%

Growth in FCF 3 = (60.40-58.08)/58.08 = 4.0%

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