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Hello Mr Moffat,
I was doing some past year questions in BPP and noticed in one particular question they didn’t include below items in the computation of Free cash flow, i thought that we should include the items, kindly correct me if am wrong.
1. Sale of an non current asset
2. Investment for expansion.Thanks
Usually we would, but without seeing the question I cannot explain why they were not included.
If it is a past exam question then if you give me the name and which exam, then I should be able to find it.The question is in BPP, Intergrand (SFM, 12/02)
(My BPP is exam upto june 2014, Question number 72, the sequence maybe different if you have the latest edition)
I sincerely appreciate Mr Moffat for your help.
Thanks
What they have done is calculated the PV of the sale and the investment separately (in workings 5 and 6) and then they have added those PV’s to the PV’s of all the other free cash flows when they have totalled everything up in the APV summary.
So they have included them 🙂
Sir just one more question,
How about interest received and interest element on Finance lease?, am kind of confused regarding what items to put in Free Cash Flow to equity.With free cash flow to equity you bring in all cash flows (including interest received, interest paid,and finance lease).
I got this question from BPP Q29 Neptune (6/08)
Where they proceeded for more than 5 years. Forgive me asking too many questions,
Thanks
Free cash flow to firm is the same as free cash flow to equity except that it will not include interest payments.
What may be causing you a problem with Neptune is that in the BPP answer (depending on which edition of the Revision Kit you have) there is a big typing error and the tax flows are all in the wrong columns. However, the final net cash flows are correct (the typist has just put things in the wrong columns).
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