Question
HELP! You are now trying to assess the free cash flow to the firm for Echotech Systems in the most recent year. The income statement
HELP!
You are now trying to assess the free cash flow to the firm for Echotech Systems in the most recent year. The income statement is reported below: 2. Revenues - Cost of goods sold - Depreciation Operating Profit (EBIT) - Interest expenses Taxable Income Taxes Net Income $1,000 $ 550 $ 150 $ 300 $ 100 $ 200 $ 50 $ 150 You are also provided with the following information: - The firm reported capital expenditures of $ 50 million in the most recent year and also made two acquisitions one for $120 million (using cash) and one for $75 million (using stock). - The working capital increased from $ 80 million at the beginning of the year to $112 million at the end of the year. a. Estimate the free cash flow to the firm for the most recent year. b. The book value of equity was $ 1100 million at the beginning of the year and the book value of debt was $1000 million. Assuming that the firm maintains its return on capital and reinvestment rate from the most recent year for the next 5 years, estimate the expected growth rate. c. If your reinvestment rate remains unchanged, what can you do to increase the expected growth rate next year? Can you give an example?
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