The free cash flow to the firm is reported as $275 million.The interest expense to the firm is $60 million.If the tax rate is 35% and the net debt of the firm increased by $33,what is the free cash flow to the equity holders of the firm?

Question

Quizplus · Accepted Answer

The free cash flow to the equity holders is calculated as the free cash flow to the firm minus the interest expense and taxes on interest expense. The interest expense is $60 million, and the tax rate is 35%. Therefore, the taxes on interest expense are $60 million * 35% = $21 million. The free cash flow to the equity holders is therefore $275 million - $60 million - $21 million = $194 million.

The Free Cash Flow to the Firm Is Reported as $275