Corporate Finance question - 2013 CFA mock exam morning Q49/50

CFA Level II Corporate Finance
#1

I noticed the question stated that ‘capital investment will be made at the END of 2012’. However, I still don’t understand why, for example, Q49 would use 2013’s data to calculate the 2014 after-tax operating cash flow; or why Q50 would use 2012’s EBIT to calculate the economic profit for year 2013 - I got the steps all right, excpet that I used the wrong year’s data.

I’d appreciate if someone could explain it, just in case I see something similar on the exam again. Thanks.

#2

yeah what the hell is going on here.

#3

I’m glad I’m not the only one asking about this, :wink:

#4

Look again at the columns. I think it’s just the way they’re lined up across the pages. 3.24 is sales for 2014…

On another note. I understand that we don’t include NWC in the yearly operating cashflows, however this is the first question I’ve seen with NWC investments throughout the project and not just in the initial year.

If we were to calculate NPV’s etc would we just take the NWC from each years OCF to get total cashflow for each year and then discount as usual?

#5

OPERATING cash flows. an investment in WC is still part operating cashflows. and is included in the discounting process. but it mentions that this invested capital (total WCs) will be regained at the end.

when he mentions capital investment he wasnt talking about working capital, rather just the FC

#6

I definetly couldn’t find an answer to question 49 because I was looking at the wrong column…

#7

Badderz is right. The first column is the 2013 column, not the 2012 column. They just left everything blank under income and expenses for 2012

#8

Also, for question 50, why isnt the additional working capital for that year, .62, added to the capital required when figuring Capital * WACC?

#9

I always said they should put the extra five minutes in to the mock and make sure everything page-breaks nicely. I clearly remember doing a double take on that table.

#10

Thank god - i had the same concern. How about the option valuation on a project when you are to assume the V0 value is 30E and go from there.

#11

Thank god - i had the same concern. How about the option valuation on a project when you are to assume the V0 value is 30E and go from there.

#12

Ingoring other CFs, if you NPV the same amount of WC InV incurred at the project inception, even fully recouped back at the the end of the project, you will get a -ve NPV. So I don’t think you can simply ignore the additional WC InV CFs in the interim…