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Basic Question 0 of 3

Watson wants to forecast FCFE of Alcan, Inc for the year of 2011. After careful research and evaluation, he expects (per share value):

  • EPS to grow 10% from $4 in 2010.
  • Capital expenditure to grow 12% from $6 in 2010.
  • Depreciation to grow to 50% from $3 in 2010.
  • Working capital to grow 25% from $1 in 2010.
  • Target debt ratio: 40%.

What is the expected FCFE for 2011?

User Contributed Comments 7

User Comment
danlan2 NI+(1-DR)(DEP-FCInv-WCInv)
MonkeySee It is assumed that part of the change in working capital is funded by debt thus to maintain the capital structure.
rhardin We should subtract out working capital INVESTMENT and fixed capital INVESTMENT, not just the totals of what FC and WC will be in 2011.
business why depreciation is 0.6*1.5*3 added instead of just 1.5*3. Surely the debt holders are not funding part of depreciation.
quanttrader I for forecasted FCFE use only growth in FC & WC inv
davidt876 i'm a lil confused too business
ashish100 It's simple. Just thank danlan keep on keepin on.
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I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt

Martin Rockenfeldt

Learning Outcome Statements

compare the FCFE model and dividend discount models;

explain how dividends, share repurchases, share issues, and changes in leverage may affect future FCFF and FCFE;

evaluate the use of net income and EBITDA as proxies for cash flow in valuation;

CFA® 2025 Level II Curriculum, Volume 4, Module 22.