The free cash flow to the firm is reported as $405 million. The interest expense to the firm is $76 million. If the tax rate is 35% and the net debt of the firm increased by $50 million, what is the free cash flow to the equity holders of the firm

A. $405.6million

Explanation:

Recall that

FCFE = FCF - expenses (1 - t) + net debt

Where

FCF = 405

Expenses = 76

t = 0.35 or 35%

Net debt = 50

Thus,

FCFE = 405 - 76 (1 -.35) + 50

= 405 - 76 (0.65) + 50

= 405 - 49.4 + 50

= 355.6 + 50

= 405.6

Therefore, free cash flow to equity holders is $405.6 million