1. a. Use the data below to compute 2014 OCF (Operating Cash Flow) b.compute the
ID: 2621328 • Letter: 1
Question
1. a. Use the data below to compute 2014 OCF (Operating Cash Flow)
b.compute the change in NOWC (Net Operating Working Capital)
c. compute the change in Gross Fixed Assets (i.e. Change in Gross property, plant & equipment)
d. compute 2014 FCF (Free Cash Flow)
2014
2013
Cash
15
17
Short-term investments
9
68
Accounts receivable
370
316
Inventories
553
417
Property, plant & equipment (net)
927
871
Accounts payable
47
32
Short-term debt
98
64
Accrued liabilities
148
135
Long-term debt
661
583
Common stock
130
130
Retained earnings
771
713
Net revenue
3143
2853
Depreciation expense
114
92
Interest
92
60
Taxes
81
81
Net income
255
123
(Round to the nearest whole dollar)
2. Assuming there is no end to the timeline and the following data:
Cost of equity = 17.64%
Cost of debt = 7.38%
Debt = $577MM
Equity = $1249MM
Tax rate = 40%
Long-term growth expectations = 3.1%
Future dividends are forecast as follows:
Year 0: n/a
Year 1: 128
Year 2: 148
Year 3: 162
Year 4: 176
Year 5: 183
a. Computetthe correct discount rate?
b. Compute the Terminal Value
3. Value the following scenario, assuming there is no end to the timeline and the following data:
Cost of equity = 15.23%
Cost of debt = 6.71%
Debt = $578MM
Equity = $1246MM
Tax rate = 40%
Long-term growth expectations = 3.8%
Future dividends are forecast as follows:
Year 0: n/a
Year 1: 129
Year 2: 146
Year 3: 165
Year 4: 176
Year 5: 182
(Round your answer to the nearest cent)
(Enter your answer as a percent with 2 decimal places but without the % symbol. For example, if you compute 25.00%, enter 25.00)
2014
2013
Cash
15
17
Short-term investments
9
68
Accounts receivable
370
316
Inventories
553
417
Property, plant & equipment (net)
927
871
Accounts payable
47
32
Short-term debt
98
64
Accrued liabilities
148
135
Long-term debt
661
583
Common stock
130
130
Retained earnings
771
713
Net revenue
3143
2853
Depreciation expense
114
92
Interest
92
60
Taxes
81
81
Net income
255
123
Explanation / Answer
Answer )
a) Operating Cash Flow (OCF) = Operating Income (revenue – cost of sales) + Depreciation – Taxes +/- Change in Working Capital.
OCF = 255+ 114 -81+ 160 =448
b) Net Operating Working Capital (NOWC) for 2014= (Cash + Accounts Receivable + Inventories) ? (Accounts Payable + Accrued Expenses)
= (15+370+553) - (47+148) = 743
NOWC for 2013 = (17+316+417)-(32+135) =583
Change in working capital = 743 -583 = 160
c) Gross fixed assets = Fixed assets in 2014 - fixed assets in2013 = 927-871 = 56
D) Free Cash flow = OCF - Capital expenditure. = 448 -56 = 392
Answer 2)
a) Correct discount rate will be WACC( weight average cost of capital)
WACC = weight of equity * cost of equity + Weight of Debt * Cost of debt
Here, given data ,
Value of debt =$ 577 and Value of equity = $1249
Value of Capital = $577 +$ 1249 = $ 1826,
Cost of equity = 17.64%
WACC = 1249/1826 * 17.64% +577/1826 * 4.43% = 13.465% = 13.46 %=13.46
B ) The terminal value of share , this is case od Gordon constant growth dividend model
V = D(1+g) / K-g , where , D = dividend of last year , g = growth rate , K = discount rate
given , D= 183 , g =3.1% and K =WACC = 13.46 % =13.46
V = 183 *(1+ 0.031) / (0.1346-0.031) = 1821.17
Answer 3) The concept is very much similar to question 2.,
a)
Value of debt =$ 578 and Value of equity = $1246
Value of Capital = $578 +$ 1246 = $ 1824,
Cost of equity = 15.23%
WACC = 1246/1824 * 15.23% +578/1824 * 4.03% = 11.6809% = 11.68 % =11.68
B )
The terminal value of share , this is case od Gordon constant growth dividend model
V = D(1+g) / K-g , where , D = dividend of last year , g = growth rate , K = discount rate
given , D= 181 , g =3.3% and K =WACC = 11.68 % = 11.68
V = 181(1+0.033)/ (0.1168 -0.033) =2231.18
Cost of Debt COst of debt Rate 7.38% Taxrate 40% Effective Cost of Debt 4.43%Related Questions
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