Cellular Access Inc., is a cellular telephone service provider that reported net operating profit after tax (or unlevered net profit) of $250 million for the most recent fiscal year. The firm had depreciation expenses of $100 million, capital expenditures of $200 million, no interest expense, and an income tax rate of 30%. Working capital increased by $10 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.

$65 million

Explanation:

The Free Cash Flow will be calculated as:

= EBIT(1-t) + Dep & Amortisation- Changes in Working Capital- Capital Expenditure

= 250(1-30%) + 100 - 200 - 10

= 250(0.7) + 100 - 200 - 10

= 175 + 100 - 210

= $65 million

0.90 or 90%

Explanation:

The risky portfolio gives a return of 16% and the T-bill gives a 6% return.

Assume that proportion y is going into the risky portfolio and x is going into the T-bill.

The expected return for the overall portfolio = 15%

Use simultaneous equation:

x + y = 1

0.16y + 0.06x = 0.15

y = 1 - x

0.16 (1 - x) + 0.06x = 0.15

0.16 - 0.16x + 0.06x = 0.15

-0.1x = 0.15 - 0.16

x = -0.01/0.1

x = 10%

y = 1 - x

= 1 - 10%

= 90%

= 0.90