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  "documentTitle": "Bear Stearns | Investment Banking Pitch Book | 36 slides",
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      "text": "Net income: Net income as reported. Add (subtract) non-cash expenses (income): Includes depreciation and amortization, deferred taxes, and other non-cash items but excludes non-cash interest expense. Subtract (add) increases (decreases) in working capital: Includes changes in accounts receivable, inventory, prepaid expenses, accounts payable, accrued liabilities, etc. In some cases, it may be appropriate to include as working capital the minimum amount of cash necessary for operational purposes. Equals adjusted cash flows from operations. Add interest expense: Includes non-cash interest expense. As long as you assume that initial excess cash and all interim cash flows are distributed to shareholders (i.e., no cash other than minimum cash balances accumulates in the forecast period), it is appropriate to exclude interest income on excess cash balances from the free cash flow calculation. Subtract interest tax shield: Calculated by multiplying the marginal tax rate by interest expense. If the company has NOLs or is not expected to be a taxpayer within the forecast horizon, there should be no interest tax shield. Subtract capital expenditures: Going forward, should include one-time, non-recurring cash flows to the extent they are planned. Equals free cash flows to the unlevered firm (FCFF): Cash flows are available to both debt and equity holders. Subtract cash interest paid: May differ from interest expense due to non-cash interest charges. Add interest tax shield: Calculated by multiplying marginal tax rate by interest expense. Add (subtract) increases (decreases) in debt, preferred stock and minority interest: Increases in non-common equity sources of capital, net of principal repayments, result in greater cash for common equity holders. Subtract preferred dividends: Any cash payments to non-common equity claimholders results in less cash to common equity holders. Equals free cash flows to the common equity (FCFCE): Cash flows are available only to common equity holders. Assumes that all cash flows to the common equity are distributed (i.e., not reinvested) to ensure that retained earnings are not double-counted.",
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