The TCM Petroleum Corporation is an integrated oil company headquartered in Fort Worth, Texas. Historical income statements for 2014 and 2015 are found below (dollar figures are in the millions):
In 2014, TCM made capital expenditures of $ 875 million, followed by $ 1,322 million in 2015. TCM also invested an additional $ 102 million in net working capital in 2014, followed by a decrease in its investment in net working capital of $ 430 million in 2015.

a. Calculate TCM’s FCFs for 2014 and 2015. TCM’s tax rate is 40%.
b. Estimate TCM’s FCFs for 2016 to 2020 using the following assumptions: Operating income continues to grow at 10% per year over the next five years, CAPEX is expected to be $ 1,000 million per year, new investments in net working capital are expected to be $ 100 million per year, and depreciation expense equals the prior year’s total plus 10% of the prior year’s CAPEX. Note that because TCM is a going concern, we need not be concerned about the liquidation value of the firm’s assets at the end of 2020.

  • CreatedNovember 13, 2015
  • Files Included
Post your question