The following table shows an abbreviated income statement and balance sheet for

Question

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016.

In 2016 Quick Burger had capital expenditures of $3,061.

a. Calculate Quick Burger’s free cash flow in 2016. (Enter your answer in millions.)

b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c. What would the company’s free cash flow have been if it was all-equity financed?

INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in $ millions) Net sales $ 27,579 Costs 17,581 Depreciation 1,414 Earnings before interest and taxes (EBIT) $ 8,584 Interest expense 529 Pretax income 8,055 Taxes 2,638 Net income $ 5,417

Explanation / Answer

FCFF = EBIT*(1-tax) + depreciation - capital expenditures - change in WC

change in WC = change in current liabilities - change in current assets

                      = (3415 - 3558) -(4970-4452) = -661

a)

FCFF = 8584*(1-0.35) + 1414 - 3061 + 661 = 4593.6

b)

Tax if it is complete equity = 0.35*8584 = 3004.4

Extra tax = 3004.4 - 2638 = 366.4

c)

FCFE = net income + depreciation - capital expenditures - change in WC

           = 5417 +1414 - 3061 + 661 = 4431

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