You have been provided with three years of historical data for Tandem computers,
ID: 2502035 • Letter: Y
Question
You have been provided with three years of historical data for Tandem computers, a firm that has p aid dividends.
1996
1997
1998
Net Income
$150
$225
$315
Capital Expenditures
$200
$250
$300
Depreciation
$125
$190
$250
Non-Cash Working Capital
$300
$330
$375
The firm started 1996 with a cash balance of $100 million, and raised 10% of its external financing needs from debt. The non-cash working capital in 1995 was $275 million. Each year the company pays out 20% of its net income as dividends.
Assuming that the firm did not buy back any stock over the period, estimate how much cash the firm would have at the end of 1998. (Assume that cash balances earn no interest and that the firm will continue to raise 10% of its external financing needs from debt)
1996
1997
1998
Net Income
$150
$225
$315
Capital Expenditures
$200
$250
$300
Depreciation
$125
$190
$250
Non-Cash Working Capital
$300
$330
$375
Explanation / Answer
Statement of cash balances
Opening cash balance $100M Add: release of working capital in 1996 0 release of working capital in 1997 45M release of working capital in 1995 30M Add: Net income before depreciation - 1996 565M - 1997 415M - 1998 275M less: Capital expenditure 750M Cash balance at the end of 1998 $680MRelated Questions
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