Question: Question 2 (This question has two parts, (a) and (b)) You take a car loan of $50,000 at an interest rate of 10% per year.

Question 2 (This question has two parts, (a) and (b))

  1. You take a car loan of $50,000 at an interest rate of 10% per year. The bank requires three flat payments of 20,105.74 each year over three years. Please split the payments into 'Interest' and 'Return of principal' and complete the following flat payment schedules.

Principal Payment Interest Repay of principal
1 50,000 20,105.74
2 20,105.74
3 20,105.74
4

  1. Check the first column in the following table and point out which item entry(s) is (are) wrong. According to the definition of free cash flow (FCF), explain why the item entry(s) is (are) wrong.

Column 1 Year 1
Free cash flow calculation
Profit after tax 245
add back depreciation 117
Add back increase in current assets 15
Subtract increase in current liabilities -8
Subtract increase in fixed assets at cost -194
Subtract after-tax interest on debt -19
Add back after-tax interest on cash & mkt. securities 4
Free cash flow 160

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