A private company has reported net income of $2,000,000, after charging depreciation of $300,000 and interest expense of $400,000. A potential acquirer is analyzing the company and has noted that operating expenses include $400,000 compensation for the chief executive (who is the controlling shareholder of the company) whereas the acquirer believes that a more appropriate figure in line with the company' size and operations is $500,000. In addition, he notes that the company owns an apartment block which generates rental income of $200,000 and has total cash costs of $120,000. The company's working capital increases over the year by $200,000 and capital expenditure was $350,000. The tax rate is 30%. The free cash flow to the firm most appropriate for use in valuing the company is closest to

Answer rating: 100% (QA)

To calculate the Free Cash Flow to the Firm FCFF for the company we need to start with the reported ... View the full answer