Working capital investment calculation

S

solarpower03

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Hi all,
Does any one remember how in the sample exam they have caluclated WCInv in the FCFF calculation?
What is the right formula for this?
Thanks
 
Current assets minus cash. Then take current liab minus debt. Take the assets minus liab from above and then that change from prior year is wcinv.
 
cash is excluded.
its working capital excluding cash and cash equivalients.
so pretty much (change in AR + change in inv) - (change in A/P)
cash and NP are excluded
 
I agree: the answer had WC as (80-105)
There was cash, receivables, inventory, but no reference anyway about payables…
I stared at this question for awhile and have no idea where they got their calculation for WC.
ALSO, a few questions later on calculating FCFE via DR, they omitted Depreciation in the calculation, is that normal?
 
In the FCFE with DR
FCFE=NI-(1-DR)(FCInv-Depr) - (1-DR)WCInv
=NI-(1-DR)(FCInv-Depr+WCInv)
In many problems they might have told you that FCInv = Depr - so those terms might be cancelling out.
 
CP, I am looking at the answer sheet, let me know your thoughts:
FCFE = Net Income - (1-DF)(FCInv - Dep) - (1-DR)(WCInv)
FCFE = 1.80 - (1 - .40)(.30 x 1.80) - (1 - .40)(.10 x 1.80)
EPS was 1.80 and FCInv was 30% of EPS and WCInv was 10% of EPS.
I get the entire equation EXCEPT for the omission of depreciation…
 
I think the 1.80 is given to you as after including depreciation.
 
I do see where you’re going; however, when it states EPS of $1.80, isn’t that essentially NI/shares outstanding? Depreciation would have already been removed to come up with NI of $1.80/share…
Am I wrong?
Also, what’s the true defintion of WCInv?
In schweser it says: equal to the change in working capital, excluding cash, notes payable, and current portion of LT debt.
An example in the book also says: (A/R2008 + Inv2008 - A/P2008) - (A/R2007 + Inv2007 - A/P2007)
I didn’t see any numbers in the equation on the sample test to equal 80 and 105…
 
At 31 December 2007 2006
Accounts receivable 413 417
Inventories 709 638
Other current assets 136 123
Current Liabilities $2,783 $2,678
So change in Current assets other than Cash: (413+709+136) - (417+638+123) = 80
Change in Current Liabs: 2783-2678=105
So WCInv = 80-105 = -25.
 
Thank you–that’s what I was missing.
So, it’s: CA - CL (excluding cash and debt)
 
for the other question - clearly stated:
• For 2008 and beyond:
- Net capital expenditures (fixed capital expenditures minus depreciation) will be 30 percent of EPS.
 
I guess I forgot to take 2007 CA - 2006 CA THEN subtract 2007 CL - 2006 CL
 
cpk123 Wrote:
——————————————————-
> for the other question - clearly stated:
>
> • For 2008 and beyond:
> - Net capital expenditures (fixed capital
> expenditures minus depreciation) will be 30
> percent of EPS.
WOW–I completely missed the words, “minus depreciation”… I guess that’s why I hate the short-story questions!
Thank you very much CP!!!!!
 
quick q
in the working capital calc, are DTAs on the assets side / DTLs and Deferred Revenue on the Liabilities side included? also, would notes payable be considered the same as LT debt?
 
cpk123 Wrote:
——————————————————-
> In the FCFE with DR
>
> FCFE=NI-(1-DR)(FCInv-Depr) - (1-DR)WCInv
> =NI-(1-DR)(FCInv-Depr+WCInv)
>
> In many problems they might have told you that
> FCInv = Depr - so those terms might be cancelling
> out.
cpk,
where does this formula emerge from. I always thought of calculating FCFF and adjust for after tax interest expense and net borrowing?
S
 
it is outlined in the “assigned” material as a method to estimate the FCFE given a target debt ratio.
 
in q28 where you calculate FCFE from EPS, how come it doesnt deduct debt to get share value? but it did in the question right before it…
 
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