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This 9 page Class Notes was uploaded by Ollie Fadel on Thursday October 29, 2015. The Class Notes belongs to FIN310 at Wright State University taught by MarlenaAkhbari in Fall. Since its upload, it has received 24 views. For similar materials see /class/231083/fin310-wright-state-university in Finance at Wright State University.
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Date Created: 10/29/15
Sources and Uses info used in Problem 26 29 Create a Statement of Sources and Uses using info in problem 26 29 Increase 91 two Therefore use these two instead Increase Alternatively we can use this info to prove the change in cash for the year Beginning cash sources 10477 uses 10 386 Ending Cash 906 or an increase of 91 FREE CASH FLOW CALCULATIONS FOR PROBLEM 326 FCF OCF CAPITAL SPENDING CHANGE IN NWC OCF EBIT 7 TAXES DEPRECIATION 12550 4222 1980 10308 CAPITAL SPENDING CHANGE IN NFA DEPRECIATION 4003 1980 5983 CHANGE IN NWC CA 7 CL 2005 MINUS CA 7 CL 2004 8322 7 2320 7 7828 7 1808 6002 6020 18 FCF 10308 5983 18 4343 Because FCF is positive we are expecting the same amount as cash ow TO investors Creditors Interest 486 TO THEM Change in LTD increase of 143 FROM THEM NET 343 TO THEM Stockholders Dividends 4000 TO THEM No change in Common stock So the NET CASH FLOW TO INVESTORS CASH FLOW TO CREDITORS CASH FLOW TO STOCKHOLDERS 343 4000 4343 WHICH AGREES WITH FCFHH Extra Financial Statement amp Cash Flow Problem Use the following information and assume the taX rate is 34 for questions a and b that follow 2004 2005 Accounts Accounts a Create and Income Statement and a Balance Sheet for each year Hint You ll need to add accounts to balance the balance sheet b For 2005 calculate the cash ow from assets the cash ow to creditors and the cash ow to stockholders Income Statement Income Statement 462 EBIT Net Income Net Income 35696 36706 b Cash ow from assets OCF 7 capital spending 7 change in NWC OCF EBIT 7taxes depreciation 3782 7 1076 1156 3862 Capital spending change in NFA depreciation 844 1156 2000 Change in NWC NWC 2005 7 NWC 2004 20786 7 5056 7 19710 7 5240 1260 Therefore Cash ow from assets 3862 7 2000 7 1260 602 Cash ow to creditors interest change in LTD 618 to them and 1094 from them for a net cash ow to them of 476 OR a 476 Cash ow to stockholders diVidends change in Stockholders Equity 1078 to them The total cash ow is therefore to the investors in the amount of 476 1078 602 which is the cash ow from assets Use the following information and assume the taX rate is 34 for questions a and b that follow Interest a Create and Income Statement and a Balance Sheet for each year Hint You ll need to add accounts to balance the balance sheet b For 2005 calculate the cash ow from assets the cash ow to creditors and the cash ow to stockholders Income Statement Income Statement b Cash ow from assets OCF 7 capital spending 7 change in NWC OCF EBIT 7 taxes depreciation 94550 7 269 289 96550 Capital spending change in NFA depreciation 211 289 500 Change in NWC NWC 2005 7 NWC 2004 519650 7 1264 7 492750 71310 315 Therefore Cash ow from assets 96550 7 500 7 315 15050 Cash ow to creditors interest change in LTD 15450 to them and 588 from them for a net cash ow to them of 43350 OR a 43350 Cash ow to stockholders diVidends change in Stockholders Equity 26950 to them and an additional 31450 to them in the form of repurchases for a net cash ow to stockholders of 584 The total cash ow is therefore to the investors in the amount of 43350 584 15050 which is the cash ow from assets There are two ways to see the cash ow to stockholders 1 we can recognize that the decrease of 62 in the stockholder account was the result of three actions a net income was added of 522 b diVidends were taken out in the amount of 26950 and c because the net income was greater than the diVidends paid the decrease must have been the result of a repurchase and the repurchase had to be large enough to wipe out the remaining net income and produce a decrease of 62 so it had to be 522 7 26950 the 62 decrease or 584 2 a second method would be to simply recognize that between the two activities we totally consumed the net income and 62 more so the cash ow to stockholders had to be 522 net income and the extra 62 the difference in the stockholders equity account 584 Problems are stated as 11Lh Edition References The rst problem is actually Problem 2 15 in the 10Lh edition and the last problem is using Table 21 and 22 in the old book The middle problem does not appear in the old book Problem 3 8 FREE CASH FLOW CALCULATION 1 Cash ow from operating EBIT 1T Depreciation 15006 30 1200 2 Cash ow need to support asset changes a Change in Net Operating Working Capital Sources Uses Change in cash 20 Change in accounts receivable 30 Change in inventory 200 Change in accounts payable 180 Change in accruals 120 TAL 180 b Fixed Asset purchases 800 Note Fixed assets purchases equals the change in NFA plus depreciation This is because NFA is increased by r 39 and J J by the J J amount on the income statement every year 3 Total the three items Free Cash Flow FCF 580 Cash Flow tofrom investors The positive free cash ow indicates that we should be calculating a cash ow TO investors because we have cash ow available and no further need After tax Interest to investors out ow 2171T 130 Dividends to investors out ow 605 Increase in Notes Payable from investorsin ow Q Total cash ow 58 Negative sign indicates out ow to investors which is consistent with a positive FCF available for payout MINI CASE pg 473 FREE CASH FLOW CALCULATION for Expected 2005 1 Cash ow from operating EBIT 1T Depreciation 502640 6 120000 421584 2 Cash ow needed to support asset changes b Change in Net Operating Working Capital Sources Uses Change in cash 67l8 Change in accounts receivable 245840 Change in inventory 429l20 Change in accounts payable 35800 Change in accruals 95040 TOTAL 550838 b Fixed Asset purchases 17050 3 Total the three items Free Cash Flow 146304 Cash Flow tofrom investors The negative free cash ow indicates that we should be calculating a cash ow FROM investors because we have did not have cash ow available to cover our increases in assets and need further funding After tax Interest to investors out ow 80000lT 48000 Dividends to investors out ow 55000 Decrease in Notes Payable to investorsout ow 420000 Decrease in LT Debt to investorsout ow 500000 Increase in Common Stock 1 220 936 Total cash ow 197972 Cash used to purchase more ST Investments 51 632 Total 146304 Positive sign indicates in ow from investors which is consistent with a negative FCF and our need for funds Note the Net Income is incorrectly totaled in the problem in the book The total from the income statement is 253584 NOT 253548 as stated This causes the true dividend amount to be 55000 as I have used in the calculation NOTE Some of the FCF was NOT paid out to investors It was instead used to purchase more short term investments which is an alternative legitimate use TABLES 3l AND 32 FREE CASH FLOW CALCULATION 1 Cash ow from operating EBIT lT Depreciation 2838 6 100 2703 2 Cash ow need to support asset changes c Change in Net Operating Working Capital Sources Uses Change in cash 50 Change in accounts receivable 600 Change in inventory 2000 Change in accounts payable 300 Change in accruals 100 TOTAL 2150 b Fixed Asset purchases 2300 3 Total the three items Free Cash Flow 1747 Cash Flow tofrom investors The negative free cash ow indicates that we should be calculating a cash ow FROM investors because we have not generated enough cash ow to cover our needs and we are in need of further funding After tax Interest to investors out ow 88lT 528 Dividends to investors out ow 575 Preferred Stock Dividends to investorsout ow 40 Increase in Notes Payable from investorsin ow 500 Increase in Long term debt 1740 Total cash ow 1097 Positive sign indicates in ow from investors which is consistent with a negative FCF and our need for funds NOTE the cash ow from investors is not enough to support the increase in assets We therefore found it necessary to liquidate our short term investment holdings Short term investments last year 65000 and this year 0 so this provided us a source of funds to use in increasing our assets The total of cash ow provided from investors plus this liquidating activity then provided the full negative FCF 1097 65 1747 which matches the magnitude of free cash ow