Homework Answers
Free Cash flow to Equity= Net Income + Depreciation - Change in Net Cash Working Capital - Net Capital Spending + Net borrowings
- Change in Net Working Capital = Net Working Capital of 2012 - Net Working Capital of 2011
Net Working Capital = Current Assets - Accounts Payable (Short-term debt is not a Non-Cash working Capital)
Change in Net Working Capital of 2012= ($1200,000 -$340,000) - ($1210,000 -$450,000) = $860,000 - $760,000
= $100,000
- Net Capital Spending of 2012 = Net Fixed assets of 2012 + depreciation of 2012 - Net Fixed assets of 2011
= $3100,000 +$280,000 - $2800,000
= $580,000
- Net Borrowings of 2012 = Total Borrowings of 2012 - Total Borrowings of 2011
Total Borrowings = Long-term debt + Short term Debt
Net Borrowings of 2012 = ($2520,000 + $480,000) - ($2200,000 + $550,000)
= $250,000
Free Cash flow to Equity of 2012 = $410,000 + $280,000 - $100,000 - $580,000 + $250,000
= $260,000
So, FCFE is closest to $300,000. hence, Option 4
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