BUSINESS 312, Burnaby Evening Section: QUIZ

NAME ______________________________ Student Number__________________________

Instructions: Open book and open notes. Work independently. Hand-in no additional sheets of
paper. Use the back of this quiz if you need more space. If you would like your quiz returned,
use pen rather than pencil. Show your work for full marks. No washroom breaks during the
examination period. Remove baseball caps or wear them backwards.

The following information is available on the financial accounts of ABC Corporation.

2013
EBITDA $190
Depreciation $100
Interest $60
2012 2013
Trade Capital ? ?
Short-Term Debt ? $1,200
Net Fixed Assets $1,250 $1,300
Equity ? $1,400
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 purposes and for
financial statement purposes is the same, and therefore, there is no deferred income tax or future
income tax liability in this problem.

ABC sold new shares in the amount of $Y during 2013. ABC's tax rate is 40%. ABC’s paid
dividends to common shareholders in the amount of $150 in 2013. For 2013, ABC’s rate of
return on invested capital (ROIC) after tax and after depreciation with beginning of period
invested capital equals their rate of return on equity (ROE) with beginning of period equity.
ABC’s incremental borrowing (or partial short-term debt repayment) was at the beginning of the
year 2013. The interest rate on ABC’s short-term debt is r% per annum. ABC’s 2013 capital
expenditure (CAPX), undertaken at the beginning of 2013, was $Z.

Required:
Find ABC’s 2013 free cash flow (FCF) with both the operating and financial calculations
(independently).

Solution