Answer-first summary for fast verification
Answer: 1,044
To determine the net debt repayment, we use the relationship between FCFF and FCFE, adjusting for the after-tax interest expense. The correct calculation is as follows: 1. **FCFF** is given as 2,500. 2. **FCFE** is given as 1,300. 3. **Interest paid** is 260, and the tax rate is 40%, so the after-tax interest is 260 * (1 - 0.40) = 156. Rearranging the formula for FCFF: \[ FCFF = FCFE + \text{Net debt repayment} + \text{After-tax interest} \] Substituting the known values: \[ 2,500 = 1,300 + \text{Net debt repayment} + 156 \] Solving for Net debt repayment: \[ \text{Net debt repayment} = 2,500 - 1,300 - 156 = 1,044 \] Thus, the correct answer is **B (1,044)**. Incorrect options: - **A (940)**: Incorrectly subtracts the full interest amount without adjusting for taxes. - **C (1,200)**: Assumes interest is classified as a financing activity, leading to an incorrect calculation.
Author: LeetQuiz Editorial Team
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An analyst gathers the following information (in thousands) about a company:
If interest paid is classified as a cash flow from operating activities and the income tax rate is 40%, the net debt repayment (in thousands) is closest to:
A
940
B
1,044
C
1,200
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