2-6 Comprehensive Project FCF The TCM Petroleum Corporation is an integrated oil company headquartered in Fort Worth, Texas. Historical income statements for 2014 and 2015 are found below (dollar figures are in the millions):

Decemer 2015 December 2014 Sales $ 13,368.00 $12,211.00 Cost of goods sold (10,591.00) (9,755.00) Gross profit 2,777.00 2,456.00 Selling, general, and administrative expense (698.00) (704.00) Operating income before depreciation 2,079.00 1,752.00 Depreciation, depletion, and amortization (871.00) (794.00) Operating profit 1,208.00 958.00 Interest expense (295.00) (265.00) Nonoperating income or expense 151.00 139.00 Special items 20.00 Pretax income 1,064.00 852.00 Taxes (425.60) (340.80) Net income $ 638.40 $ 511.20 In 2014, TCM made capital expenditures of $875 million, followed by $1,322 million in 2015. TCM also invested an additional $102 million in net working capital in 2014, followed by a decrease in its investment in net working capital of $430 million in 2015.

Calculate TCMs FCFs for 2014 and 2015. TCMs tax rate is 40%.

Estimate TCMs FCFs for 2016 to 2020 using the following assumptions: Operating income continues to grow at 10% per year over the next five years, CAPEX is expected to be $1,000 million per year, new investments in net working capital are expected to be $100 million per year, and depreciation expense equals the prior years total plus 10% of the prior years CAPEX. Note that because TCM is a going concern, we need not be concerned about the liquidation value of the firms assets at the end of 2020.