Gators Incorporated Has the Following Information for the Current Year

question 25

Multiple Choice

Gators Incorporated has the following information for the current year and projected for next year.Calculate its projected free cash flow to equity.(Assume new debt is added at the beginning of the year.) $\begin{array}{lr}&\text {Current}&\\&\text {year}&\text {Projected}\\ \text { FCF } & \text { NA } &\$1,000\\\text { Total debt } & \$ 400&\$600 \\\text { Interest rate on debt } & 6 \% & 6 \% \\\text { Tax rate } & 25 \%& 25 \%\end{array}$

• A) $1,066
• B) $1,173
• C) $1,290
• D) $1,419
• E) $1,561

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Definitions:

Machine-hour

A unit of measure representing the operation of a machine for one hour, often used in cost accounting to allocate expenses.

Cost Formula Equation

An equation used to predict the total cost of production, combining both fixed and variable costs.

High-low Method

A technique used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Mixed Cost

A cost that contains both variable and fixed cost elements, changing in total with changes in the activity level but not proportionately.