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# Free cash flow

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TCM Petroleum is an integrated oil company headquartered in Fort Worth, Texas. Income statements for 2005 and 2006 are found below (\$ millions):(see the attached spreadsheet)

In 2005 TCM made capital expenditures of \$875 million followed by \$1,322 million in 2006. TCM also invested an additional \$102 million in net working capital in 2005, followed by a decrease in its investment in net working capital of \$430 million in 2006.

a. Calculate TCM's PFCF for 2005 and 2006. TCM's tax rate is 40%.
b. Estimate TCM's PFCF for 2007-2011 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 year total plus 10% of the prior year's CAPEX. Note that since TCM is a going concern we need not be concern about the liquidation value of the firm's assets at the end of 2011.

https://brainmass.com/economics/estimation-and-forecasting/233840

#### Solution Preview

a) Calculate TCM PFCF for 2005 and 2006. TCM's tax rate is 40%

For the year 2005
Free cash flow= After tax operating income+Depreciation expense-Increase in Working capital - Capital expenditure
=(958-340.8)+794-875-102
\$434.20 mn

For the year 2006
Free cash ...

#### Solution Summary

Response provides the steps to compute the free cash flow

\$2.19

## Dell analysis of cash provided by operating activities, fred cash flow, dividends

See attached files.

Case 7-1
Analysis of Cash Flows

Refer to the annual report of Dell in Appendix A:

Required:
a. Explain how the following items create differences between Dell's earnings from continuing operations and its net cash provided by operating activities:
(1) Depreciation and amortization
(2) Change in deferred taxes
(3) Decrease in receivables
(4) Decrease in inventories
b. Explain why net income is much less than cash from operations in 2005.
c. Calculate Dell's free cash flows for each of the past three years.
d. How has Dell used its free cash flows during the past three years?
e. How much cash has Dell returned to shareholders during each of the past three years and in total?