Hi All,
I’m new to the forum and this is my first post. Apologies if this has been addressed somewhere else as I’m not as familiar with the navigation of this site yet. I’m going through the EOCs and need assistance with #13A of Free Cash Flow Valuations (page 324 of Volume 4). In reviewing the answer (page 339), it shows that WCInv is $41 million but I can’t seem to figure out where this is derived from for calculating FCFE. Was hoping someone here can explain? Thanks!
WCInv = (Current Asset Year 2 - Current Asset Year 1) - (Current Lia Year 2 - Current Lia Year 1)
= (321 - 196) - (141 - 57) = $41,
It’s worth noting that we exclude Cash from the Asset side and Notes Payable/Current portion of Long Term Debt from the Lia side. Since the question states there is $5 cash in 2007 and 2008 we exclude the $5 cash from both years. It ends up being the same if we didn’t adjust for cash because it was the same amount in each year but for the exam remember to remove cash as it is often different each year.