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Experience:  Post Graduate Diploma in Management (MBA)
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# for Linda TCM petroleum is an integrated oil company headquartered

### Resolved Question:

TCM petroleum is an integrated oil company headquartered in Forth Worth, Texas. Income statements for 2005 and 2006 are found below (\$ millions)                                                                                                          Dec 06        Dec 05 Sales                                                                                                     13,368.00          12,211.00 Cost of goods sold                                                                          (10,591.00)          (9,755.00) Gross profit                                                                                       2,777.00                 2,456.00 Selling, general & administrative expense                                  (698.00)                 (704.00) Operating income before depreciation                       2,079.00              1,752.00 Depreciation, depletion and amortization                                  (871.00)                   (794.00) Operating profit                                                                              1,208.00                    958.00 Interest expense                                                    (295.00)                      (265.00)     Nonoperating income or expense                      151.00          139.00 Special items                                             20.00 Pretax income                                    1,064.00          852.00                  Total income before taxes                         (425.60)          (340.80 Net income                                 638.40          511.20 In 2005 TCM made capital expenditures of \$875 million followed by \$1,322 million in 2006. TCM also invested an additional \$102 million in net working capital in 2005, followed by a decrease in its investment in net working capital of \$430 million in 2006. Questions a.     Calculate TCM’s PFCF for 2005 and 2006. TCM’s tax rate is 40% b.     Estimate TCM’s PFCF for 2007-2011 using the following assumptions: Operating income continues to grow at 10% per year over the next five years. CAPEX is expected to be \$1,000 million per year, new investments in net working capital are expected to be \$100 million per year, and depreciation expense equals the prior year total plus 10% of the prior year’s CAPEX. Note that since TCM is a going concern we need not be concerned about the liquidation value of the firm’s assets at the end of 2011.
Submitted: 7 years ago.
Category: Homework
Expert:  Linda_us replied 7 years ago.
Hi JACUSTOMER

Thanks for requesting me. I am really sorry but this was not appearing in the search I did earlier. Do you still need this?

Regards

Linda
Customer: replied 7 years ago.
Yes I do. I've been waiting all day for it. Thought you weren't online today. I would appreciate the answer asap. Thanks so much!
Expert:  Linda_us replied 7 years ago.
Anyways, now I am here I will take care of it.

Just to make sure how do you want me treat for the following items year 2007-2011 (Part b)

Nonoperating income or expense

Interest Expense

Special Items

My suggestion - We should keep Nonoperating income or expense and Interest Expense same as given for 2006 (Or we can increase them by constant figure) and can ignore special item.

Let me know if you have any other suggestion.

Regards

Linda

Customer: replied 7 years ago.
I am very unsure of how to answer that question, it gave me a bit of a headache myself. I like your suggestion though. Lets do it that way.
Expert:  Linda_us replied 7 years ago.
Just one final thing whats the formula used in your book for FCF

Normal
FCF = Net Income + Depreciation - Capital Expenditure - Change in Working Capital

(But sometime Interest expense is also added to net income)

Edited by Linda on 10/18/2010 at 10:02 PM EST
Expert:  Linda_us replied 7 years ago.
Just one final thing whats the formula used in in your book for FCF

Normal
FCF = Net Income + Depreciation - Capital Expenditure - Change in Working Capital

Yet another formula is FCF = Operating Income - Taxes + Depreciation +/- Capital Expenditure +/- Change in Working Capital

(Where Taxes = Operating Income*TaxRate)
(But sometime Interest expense is also added to net income)

Edited by Linda on 10/18/2010 at 10:17 PM EST
Customer: replied 7 years ago.
In my book, EFCF is calculated as: EBIT(1-T)+DA-WC-CAPEX..this formula is rearranged throughout the chapter but this is the main formula
Expert:  Linda_us replied 7 years ago.
Thats good, this is the second formula I provided.

You will get the solution in 30-40 minutes. Thanks for all the patience.

Edited by Linda on 10/18/2010 at 10:42 PM EST
Customer: replied 7 years ago.
Ok great. Thanks
Expert:  Linda_us replied 7 years ago.

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Customer: replied 6 years ago.
Hi Linda,

I posted a question since yesterday but no one has answered it yet. Can you please answer it?

Thanks
Customer: replied 6 years ago.
Hi Linda,