7.13 Abbreviated financial statements for Fletcher Corporation are given in Table 7.7.

2010 2011 Revenues $600 $690 Operating expenses 520 600 Depreciation 16 18 Earnings before interest and taxes 64 72 Less interest expense 5 5 Less taxes 23.6 26.8 Equals: net income 35.4 40.2 ADDENDUM:
Yearend working capital 150 200 Principal repayment 25 25 Capital expenditures 20 10 Yearend working capital in 2009 was $160 million, and the firm’s marginal tax rate was 40% in both 2010 and 2011. Estimate the following for 2010 and 2011:

a. Free cash flow to equity. Answer: $16.4 million in 2010 and –$26.8 million in 2011

b. Free cash flow to the firm. Answer: $44.4 million in 2010 and $1.2 million in 2011