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.

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Decemer 2015 13 368.00 10,591.00) 2.777.00 (698.00) 2.079.00 (871.00) 1,208.00 (295.00) 151.00 December 2014 Sales $12,211.00 Cost of goods sold 9,755.00) Gross profit 2456.00 (704.00) 1,752.00 794.00) 958.00 (265.00) 139.00 20.00 852.00 (340.80) 511.20 Selling, general, and administrative expense Operating income before depreciation Depreciation, depletion, and amortization Operating profit Interest expense Nonoperating income or expense Special items 1,064.00 (425.60) 63840 Pretax income Taxes Net income