Use the following information to answer the question(s)below.
Galt Industries is expected to generate free cash flows of $24 million per year.Galt has permanent debt of $80 million,a corporate tax rate of 21%,and an unlevered cost of capital of 12% and its cost of debt capital is 6%.
-Galt's free cash flow to equity (FCFE)is closest to:
A)$19.2 million.
B)$23.4 million.
C)$20.2 million.
D)$24.0 million.

Question

Quizplus · Accepted Answer

FCFE = Free Cash Flow to Equity
= Free Cash Flow - (Interest x (1 - Tax Rate)) - Debt Repayment
= $24 million - ($80 million x 6%) x (1 - 21%) - $0
= $20.2 million

Therefore, the closest FCFE is $20.2 million, which corresponds to choice C.

Use the Following Information to Answer the Question(s)below