CFAI Reading 27 Problem 13.

CFA Level II Corporate Finance
#1

CFAI Reading 27 Problem 13.

How come the entire $15M is deducted entirely from $25M?

thanks,

#2

Because before paying dividends, they are going to spend 15mm of Earnings on cap expenditures. The remainder is for dividends.

#3

but aren’t you suppose to take the equity/value weight x capital expenditure?

Just like in problem 9?

#4

The big difference here (vs. pb 9) is that all capex is to be " entirely funded out of this year’s earnings" so no need to account for weight of equity.

#5

ah ok thanks… damn those little key words.

thanks

#6

Yes, definitely tricky! It took me a while to figure out. At least by doing all EOC you kind of get a habit of looking at every detail. Good luck