Question and Problem 3: Firm value

1. Compare and contrast Free Cash Flow (FCF) and Net Income (NI). What is the important of each to the firm and investors?

1. Walk through the FCF cash flow and demonstrate how it is calculated from the financial statements in the problem provided.

The following information was reported for 20X2 and 20X3 for Fractal Antenna Systems:

	20X2	20X3
Income Statement (in millions $)
Net Sales	2,508	2,827
Cost of Sales	830	959
Gross Income	1,678	1,868
Depreciation	1,061	1,301
Interest Expense	191	175
Operating Expenses	270	306
Earnings Before Tax	156	86
Provision for Taxes	61	34
Net Income After Tax	95	52
Balance Sheet (in millions$)
Cash and Securities	462	545
Accounts Receivable	267	309
Inventory	541	629
Other current assets	142	167
Total Current Assets	1,412	1,650
Gross property & equipment	6,410	7,449
Accumulated depreciation	2,714	4,015
Net property and Equipment	3,696	3,434
Goodwill	1,069	1,069
Total Assets	6,177	6,153
Accounts Payable	91	110
Short-term debt	842	814
Current portion long-term debt	165	200
Accrued expenses	120	134
Total current liabilities	1,218	1,258
Long-term debt	1,389	1,189
Deferred taxes	370	454
Shareholder's equity	3,200	3,252
Total liabilities and equity	6,177	6,153

Calculate the projected free cash flow for Fractal Antenna Systems in 20X3.