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9 February, 21:32

An analyst following Barlow Energy has compiled the following information in preparation for additional analysis she has to include in a report she has been asked to produce (data is in hundreds of millions of $) : Preferred share dividends: $14 Net income available to common: $125 Investment in working capital: $30 Investment in fixed capital: $100 Net new borrowing: $40 Depreciation: $50 Tax rate: 40%. Market value of debt is $600 and interest on this debt is 7.5% The current FCFE for Barlow Energy is closest to:

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  1. 9 February, 23:08
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    FCFE: 99

    Explanation:

    FCFE: cash flow from operation - CAPEX + borrowing

    we calcualte the cash flwo form operation using the indirect method:

    net income - preferred dividends = available for common stock

    income = 125 + 14 = 139

    net income 139

    depreciation expense 50

    change in working capital (30)

    cash flow from operation: 159

    CAPEX will be the long term assets investment

    investment on fixed capital 100

    CAPEX 100

    net borrowing 40

    159 - 100 + 40 = 99
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