35.A firm recently reported EBITDA of $3.95 million, depreciation of $1.20 milli

Question

35.A firm recently reported EBITDA of $3.95 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $1.2 million. How much was its free cash flow, in millions? I

28.If a there is a callable bond, Which of the following events would likely cause the company to call the bond.

The company's bonds are downgraded.

Market interest rates are greater than the coupon rate

Market interest rates are less than the coupon rate

The company's financial ratios significantly deteriorate. Inflation increases significantly.

Explanation / Answer

Question 1:

FCFF = EBITDA * (1 - Tax Rate) + Depreciation * Tax rate - Fixed Capex - Net working capital

FCFF = $3.95 * (1 - 40%) + 1.20 * 40% - 1.2 mil

FCFF = 2.37 + 0.48 - 1.2 = 1.65 mil

Question 2

Answer - Market interest rates are less than coupon rate.

Callable bonds would be called back when interest rates are lower in market and firm can issue new debt at a lower cost. Lower rates mean lower yield or higher prices.

When bonds are degraded - yield will rise. hence it is an incorrect option.

Option 2 is also incorrect as price would be lower or yield would be higher.

Option 3 and Option 4 - both lead to higher yield demand or lower prices and hence would not be called.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.