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Basic Question 4 of 7
Connie's Sporting Goods (CSG) has net income of $805 million for 2011. Using information from the CSG's financial statements below, use the EBITDA approach to find what FCFF and FCFE should be for CSG. Assume the income tax rate is 30%.
User Contributed Comments 3
| User | Comment |
|---|---|
| JimM | Don't forget to add back in the Dep(Tax rate) term in this calculation. |
| alejandroc | Shouldn't FCFF incorporate the tax shield given by interest income? |
| davidt876 | alejandroc - we've been removing the tax shield from interest this whole time with Int * (1-T)... the idea is that for FCFF we want to see the cash flows before any financing decision have been made, so we don't get to benefit from the tax shield. depreciation isn't a financing decision, so when we add depreciation, we add back in its tax benefit - that is, by not removing it. so FCFF does incorporate the tax shield given by interest income.. it just removes it. |
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Learning Outcome Statements
explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE;
calculate FCFF and FCFE;
CFA® 2025 Level II Curriculum, Volume 4, Module 22.