OCF = $2,900 + 2,900 884 – OCF = $4,916 Change in NWC = NWCend NWCbeg c. – = CLend) (CAbeg CLbeg) – – – = ($5,345 2,785) ($4,630 2,520) – – – = $2,560 2,110 – = $450 Net capital spending = NFAend NFAbeg + Depreciation – = $17,120 15,470 + 2,900 – = $4,550 CFA = OCF Change in NWC Net capital spending – – = $4,916 450 4,550 – – = –$84 The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $84 in funds from its stockholders and creditors to make these investments. Cash flow to creditors = Interest Net new LTD d. – = $690 0 – = $690 Cash flow to stockholders = Cash flow from assets Cash flow to creditors – = 690 –$84 – = –$774 We can also calculate the cash flow to stockholders as: Cash flow to stockholders = Dividends Net new equity – Solving for net new equity, we get: Net new equity = $774 (–660) – = $1,434 The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $450 in new net working capital and $4,550 in new fixed assets. The firm had to raise $84 from its stakeholders to support this new investment. It accomplished this by raising $1,434 in the form of new equity. After paying out $660 of this in the form of dividends to shareholders and $690 in the form of interest to creditors, $84 was left to meet the firm’s cash flow needs for investment. 21. Total assets 2014 = $964 + 4,384 = $5,348 a. Total liabilities 2014 = $401 + 2,380 = $2,781 Owners’ equity 2014 = $5,348 2,781 = $2,567 –
OCF = $2,900 + 2,900 – 884 OCF = $4,916 c. Change in NWC = NWCend – NWCbeg = – CLend) – (CAbeg – CLbeg) = ($5,345 – 2,785) – ($4,630 – 2,520) = $2,560 – 2,110 = $450 Net capital spending = NFAend – NFAbeg + Depreciation = $17,120 – 15,470 + 2,900 = $4,550 CFA = OCF – Change in NWC – Net capital spending = $4,916 – 450 – 4,550 = –$84 The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $84 in funds from its stockholders and creditors to make these investments. d. Cash flow to creditors = Interest – Net new LTD = $690 – 0 = $690 Cash flow to stockholders = Cash flow from assets – Cash flow to creditors = –$84 – 690 = –$774 We can also calculate the cash flow to stockholders as: Cash flow to stockholders = Dividends – Net new equity Solving for net new equity, we get: Net new equity = $774 – (–660) = $1,434 The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $450 in new net working capital and $4,550 in new fixed assets. The firm had to raise $84 from its stakeholders to support this new investment. It accomplished this by raising $1,434 in the form of new equity. After paying out $660 of this in the form of dividends to shareholders and $690 in the form of interest to creditors, $84 was left to meet the firm’s cash flow needs for investment. 21. a. Total assets 2014 = $964 + 4,384 = $5,348 Total liabilities 2014 = $401 + 2,380 = $2,781 Owners’ equity 2014 = $5,348 – 2,781 = $2,567
solution-manual-corporate-finance-11th-edition-ross.docx