If beginning cash is $21.0m, minimum cash is $5.0m, and the cash available to pay down the revolver is $28.5m, assuming the only variable not stated is the current-period free cash flow, the FCF generated must have been $___m.

• A. 10.0
• B. 12.5
• C. 15.0
• D. 20.0

Answer: (B)

The amount of free cash flow is determined by how much cash you start with, how much you use to pay down debt, and how much cash you must keep on hand as a minimum. The cash balance evolution can be written as: ending cash = beginning cash + FCF − cash used to pay down revolver. Here, beginning cash is 21.0, the revolver is paid down by 28.5, and the company must hold a minimum cash balance of 5.0. To satisfy the minimum cash requirement exactly while paying down 28.5, set ending cash to 5.0 and solve for FCF: 21.0 + FCF − 28.5 = 5.0. This gives FCF = 5.0 + 28.5 − 21.0 = 12.5. Therefore, the Free Cash Flow generated must have been 12.5 million. If FCF were higher, ending cash would exceed the minimum, but with the given numbers, 12.5m is the amount that just meets the minimum cash constraint after the revolver payoff.