While valuing the equity of Rio National Corp. (from the previous problem), Katrina Shaar is considering the use of either cash flow from operations (CFO) or free cash flow to equity (FCFE) in her valuation process.
a. State two adjustments that Shaar should make to cash flow from operations to obtain free cash flow to equity.
b. Shaar decides to calculate Rio National€™s FCFE for the year 2010, starting with net income. Determine for each of the five supplemental notes given in Table H whether an adjustment should be made to net income to calculate Rio National€™s free cash flow to equity for the year 2010, and the dollar amount of any adjustment.
c. Calculate Rio National€™s free cash flow to equity for the year2010.

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Note 1 Rio National had $75 million in capital expenditures during the year Note 2: Note 3: Note 4: Note 5: A piece of equipment that was originally purchased for $10 million was sold for $7 million at year-end, when it had a net book value of $3 million. Equipment sales are unusual for Rio National. The decrease in long-term debt represents an unscheduled principal repayment; there was no new borrowing during the year. On January 1, 2010, the company received cash from issuing 400,000 shares of common equity at a price of $25.00 per share. Anew appraisal during the year increased the estimated market value of land held for investment by $2 million, which was not recognized in 2010 income.