STEP-BY-STEP SOLUTION TO :Problem Set 9: DCF: Free Cash Flow1. Problem 1. GoPro – NOPAT

GoPro’s earnings before interest and taxes (EBIT) was $190 million.

Assuming GoPro’s tax rate is 35%, what is their net operating profit after taxes (NOPAT) for 2014 expressed in million of dollars?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Problem 2. GoPro – Unlevered Free Cash Flow

In 2014, GoPro spent $27.5 million on capital expenditures, experienced an increase in net working capital (including cash) equal to

$239 million, and realized $18 million in depreciation.

What is GoPro’s unlevered free cash flow for 2014?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Problem 3. Free Cash Flow

What does a negative value for unlevered free cash flow imply for the claimants of a firm?

a) The firm is overinvesting

b) Revenues are less than costs

c) Shareholders have made a bad investment

d) The firm must raise capital from the capital markets (e.g., debt, equity), or liquidate internal assets (e.g., cash)

e) Management is doing a bad job

Problem 4. Free Cash Flow

When a firm changes its capital structure by issuing or retiring debt, for example, this change alters the firms unlevered free cash flow.

a) False

b) True