Question and Problem 2: Firm value

1. Compare and contrast Free Cash Flow to the Firm (FCF) and Net Income (NI). What is the important of each to the firm and investors?

1. Walk through the FCF (to the firm) calculation and demonstrate how it is calculated from the financial statements in the problem provided.

The following information was reported for 20X1 and forecasted (F) for 20X2 for Fractal Antenna Systems:

What changes, if any, would recommend to Fractal to increase a positive free cash flow to the firm? If no changes, what would you recommend for reinvestment of cash flow to increase firm value?

Income Statement (in millions $)	20X1	20X2-F
Net Sales	$ 3,138	$ 3,571
Cost of Sales	1,087	1,241
Gross Income	2,051	2,330
Depreciation	1,009	917
Interest Expense	142	110
Operating Expenses	334	374
Earnings Before Tax	566	929
Provision for Taxes	221	363
Net Income After Tax	$ 345	$ 566
Balance Sheet (in millions$)
Cash and Securities	$ 618	$ 704
Accounts Receivable	354	405
Inventory	739	864
Other current assets	212	206
Total Current Assets	1,923	2,179
Gross property & equipment	8,200	9,016
Accumulated depreciation	5,024	5,941
Net property and Equipment	3,176	3,075
Goodwill	1,069	1,069
Total Assets	6,168	6,323
Accounts Payable	117	135
Short-term debt	585	393
Current portion long-term debt	223	267
Accrued expenses	174	168
Total current liabilities	1,099	963
Long-term debt	966	699
Deferred taxes	505	496
Shareholder's equity	3,598	4,165
Total liabilities and equity	$ 6,168	$ 6,323