Lecture_03 - Lecture 3: Accounting for Financial Statement:...

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Lecture 3: Accounting for Financial Statement: II
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Topics in Chapter Modifying accounting data for managerial decisions: II MVA and EVA Federal Income Tax System
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Free cash flow (FCF) What is free cash flow? FCF is the amount of cash available from operations for distribution to all investors (including stockholders and debt holders) after making the necessary investments to support operations. Why is free cash flow important? A company’s value depends upon the amount of FCF it can generate
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What are the five uses of FCF? Pay interest on debt. Pay back principal on debt. Pay dividends. Buy back stock. Buy non-operating assets (e.g., marketable securities, investments in other companies, etc.)
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Calculation of FCF FCF = NOPAT - Net investment in operating capital Net Investment in Operating Capital = $1,800 - $1,455 = $345 million FCF = $170.3 - $345 = -$174.7 million
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FCF and Corporate Finance The value of a company depends on the present
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This note was uploaded on 06/06/2011 for the course FINA 4200 taught by Professor Wu during the Spring '08 term at University of Georgia Athens.

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Lecture_03 - Lecture 3: Accounting for Financial Statement:...

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