A company has the following information: Earnings before interest and taxes Interest expense $ 11

Finance Nov 24, 2020

A company has the following information: Earnings before interest and taxes Interest expense $ 11.00 Tax rate Net change in debt Investment in total capital What is its free cash flow to equity? Do not round Intermediate calculations, Round your answer to the nearest cent. 40% $ 12.00 $ 8.00

Expert Solution

Calculation of FCFE:

Earning before tax= Earning before interest and tax- interest

Earning before tax=(80-11)= 69

Earning after tax= Earning before tax×(1-tax)= 69×(1-0.40)= (69×0.6)= 41.4

FCFE= Earning after tax+net change in debt-investment in total capital

FCFE= 41.4+12-8= 45.4

FCFE= $45.4

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