CFA CFA Level 2 fixed capital investment and FCFF

fixed capital investment and FCFF

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    • googs1484
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      Question 25 (1 of 6)
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      Based on Exhibits 1 and 2, the estimated free cash flow ($ thousands) for AI in 2017 is closest to

      1. 280.7

      2. 512.2

      3. 385.1

      Solution

      Free cash flow (FCF) = Net operating profit less adjusted taxes (NOPLAT) + Depreciation – Change in net working capital – Capital expenditures

      NOPLAT = Net income + After-tax interest + Change in deferred taxes

      NOPLAT = 625 + 59 x(1-0.2) + 0 = 672.2

      FCF = 672.2 + 160 – [(2,150-1,680)-(2,100-1,650)] – (22,800-22,500) = $512.2

    • googs1484
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      @pauladaptprep I am usually pretty good with this stuff so this is bothering me but I think the answer here is wrong from your question bank. You took the change in NET capital fixed investment which already includes the effects of depreciation in FCF. By you adding back depreciation on top of the delta of net FCinv you are double counting. Did not you over state FCF here by 160?

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