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222 - The following information is available on the...

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The following information is available on the financial accounts of ABC Corporation. 2010 EBITDA 1,480 Depreciation ? Interest ? 2009 2010 Trade Capital ? ? Short-Term Debt ? ? Net Fixed Assets ? ? Equity 1,600 2,000 Invested Capital ? ? NOTES: "Equity" represents the sum of all of the accounting equity accounts (that is, share-capital plus retained earnings). You can presume that depreciation for tax and for financial statement purposes is the same, and therefore, there is no deferred income tax or future income tax liability in this problem (i.e., capital cost allowance is the same as financial statement depreciation). ABC made capital expenditures of $480 during 2010. The increase in ABC’s Net Fixed Assets from year-end 2009 to year-end 2010 was $300. ABC paid dividends to shareholders of $120 during 2010. ABC repurchased $150 of shares from common shareholders during 2010. ABC's tax rate is 40%. The increase in ABC’s Trade Capital from year-end 2009 to year-end 2010 was $200. Required: What was ABC’s dollar interest expense for 2010? CAPX=480 ∆NFA=300 ∆TC=200 Div=120 REPUR=150 Since, CAPX=∆NFA+deprec, deprec=480-300=180 FCF=FFO-ΔTC-CAPX=(1-t)*(EBITDA-deprec)+deprec - ∆TC - CAPX =0.6(1,480-180)+180-200- 480=$280 ∆TC +∆NFA=∆debt+∆EQ So, 200+300=∆debt+(2,000-1,600), and ∆debt=100 In the financial definition of FCF,
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FCF=(1-t)*interest-∆debt +dividends+repurchase of shares So, 280=0.6*Interest-100+120+150, So, Interest = $183.33 The following information is available on the financial accounts of ABC Corporation. 2009 EBITDA 2,942 Depreciation 300 Interest ? 2008 2009 Trade Capital ? ? Short-Term Debt ? ? Net Fixed Assets ? ? Equity 4,800 ? Invested Capital ? ? NOTES: "Equity" represents the sum of all of the accounting equity accounts (that is, share- capital plus retained earnings). You can presume that depreciation for tax and for financial statement purposes is the same, and therefore, there is no deferred income tax or future income tax liability in this problem (i.e., capital cost allowance is the same as financial statement depreciation). ABC repaid $350 of their short-term debt during 2009. The increase in ABC’s Net Fixed Assets from year-end 2008 to year-end 2009 was $400. The increase in ABC’s Trade Capital from year- end 2008 to year-end 2009 was $275. ABC paid dividends to shareholders of $315.2 during 2009. ABC repurchased $50 of shares from common shareholders during 2009. ABC's tax rate is 40%. Required: What is ABC’s 2009 Rate of Return on Equity using beginning of period book equity? Solution 1: CAPX=ΔNFA+deprec=400+300=700. FFO=(1-t)*(EBITDA-deprec)+deprec=0.6*(2,942-300)+300=1,885.2. Use the operating definition of FCF, FCF=FFO-ΔTC-CAPX=1,885.2-275-700=910.2 The financial and operating definitions of FCF must equal the same value, so, 910.2=0.6*INT+DEBTREPAY+DIV+REPUR=0.6*INT+350+315.2+50.
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So, INT=$325. So, The following information is available on the financial accounts of ABC Corporation. 2009 EBITDA 2000 Depreciation ? Interest ? 2008 2009 Trade Capital ? ? Short-Term Debt 600 480 Net Fixed Assets ? ?
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