Use Coug Co.’s financial statements below to calculate their FCFE for 20X1:

Coug Co. Balance Sheet

Assets
20x0 20x1
Current assets
Cash $ 295 $ 340
Inventory $ 206 $ 210

Accounts Receivable

$ 198 $ 243
Total CA $ 699 $ 793
LT Assets
PP&E $ 1,190 $ 1,240
Accumulated Depreciation $ (280) $ (310)
Net PP&E $ 910 $ 930
Total Assets $ 1,609 $ 1,723
Liabilities & Equity
20x0 20x1
Current Liabilities
Accounts Payable $ 148 $ 166
Notes Payable $ 110 $ 80
Total CL $ 258 $ 246
Long-Term Debt $ 335 $ 360
Total Liabilities $ 593 $ 606
Owners' Equity $ 1,016 $ 1,117
Total Liab. & Equity $ 1,609 $ 1,723

Coug Co. Income Statement 20x1

Revenue $ 1,548.00
COGS $ (423.00)
Depreciation $ (388.00)
EBIT $ 737.00
Interest Expense $ (124.00)
EBT $ 613.00
Taxes $ (147.00)
Net Income $ 466.00

Question

Use Coug Co.’s financial statements below to calculate their FCFE for 20X1:

Coug Co. Balance Sheet

Assets
	20x0	20x1
Current assets		
Cash	$ 295	$ 340
Inventory	$ 206	$ 210

Accounts Receivable

$ 198	$ 243
Total CA	$ 699	$ 793
LT Assets		
PP&E	$ 1,190	$ 1,240
Accumulated Depreciation	$ (280)	$ (310)
Net PP&E	$ 910	$ 930
Total Assets	$ 1,609	$ 1,723
Liabilities & Equity
	20x0	20x1
Current Liabilities		
Accounts Payable	$ 148	$ 166
Notes Payable	$ 110	$ 80
Total CL	$ 258	$ 246
Long-Term Debt	$ 335	$ 360
Total Liabilities	$ 593	$ 606
Owners' Equity	$ 1,016	$ 1,117
Total Liab. & Equity	$ 1,609	$ 1,723

Coug Co. Income Statement 20x1

Revenue	$ 1,548.00
COGS	$ (423.00)
Depreciation	$ (388.00)
EBIT	$ 737.00
Interest Expense	$ (124.00)
EBT	$ 613.00
Taxes	$ (147.00)
Net Income	$ 466.00

BlackTom AI · Accepted Answer

We must calculate FCFE (Free Cash Flow to Equity) for 20X1 using the provided financial statements and then compare the answer options.
First, restate the key figures needed for the FCFE formula. A common approach is:
FCFE = NI + Non-cash charges (e.g., depreciation) - Capex - ΔNWC + Net new borrowings
Now evaluate each option by applying this formula step by step.
Option 1: $723
- Net Income (NI) for 20X1 = 466
- Non-cash charges: Depreciation = 388
- Capex: Use change in gross PP&E (not net). Gross PP&E rose from 1,190 to 1,240, a increase of 50. Thus Capex = 50
- ΔNWC: Compute change in net working capital. Current assets rose from 699 to 793 (ΔCA = +94). Current liabilities fell from 258 to 246 (ΔCL = -12). ΔNWC = ΔCA - ΔCL = 94 - (-12) = 106, which consumes cash, so we subtract 106
- Net new borrowings: Long-term debt increased from 335 to 360 (+25). Notes payable decreased from 110 to 80 (a repayment of 30, which is a cash outflow but not new financing). Net new borrowings = +25
Now combine: 466 + 388 - 50 - 106 + 25 = 723. This aligns with Option 1.
Option 2: $723 is the correct computation path just walked through; still, let’s check the other options to see why they don’t fit.
Option 2: $698
- If we tried to adjust Capex or ΔNWC incorrectly (e.g., using 408 for Capex by treating Capex as depreciation plus net PP&E change, or miscomputing ΔNWC), the result would deviate from 723. The misstep would likely be either overcounting Capex (using 408) or miscalculating ΔNWC sign, which would reduce the FCFE value accordingly.
Option 3: $994
- This would require substantially larger additions back to NI, or a much smaller deduction for Capex or ΔNWC, or a large net borrowing figure. Since Capex is only 50 and ΔNWC is 106 in this problem, achieving 994 would demand an unrealistically large positive adjustment elsewhere, which is not supported by the data.
Option 4: $969
- Similar to option 3, reaching 969 would imply misrecording either Capex as far smaller than 50, or misclassifying some cash flows (e.g., excluding the ΔNWC impact). The given numbers do not justify such a high FCFE when Capex is 50 and ΔNWC is 106.
In summary, the only option that cleanly fits the standard FCFE computation with the provided figures is $723, when Capex is taken as the change in gross PP&E (50) and ΔNWC is calculated as 106, with net new debt +25.

MSB-250-300-002 Proctored Final Exam

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