WCInv examples from CFAI textbook examples, accounts, increase, control, income

JPSem

p. 432, #2
WCI = increase in a/r + increase in inventory - increase in accounts payable - increase in accrued taxes and liabilities… = 39+44-22-23 = 38
Furthermore, net borrowing is right from my formula sheet: increase in notes payable + increase in long term debt
I got that, and for a second I though I may have things under control.
—–
page 440, #13A
Computing FCFE: ni+depreciation-FCI-WCI+net borrowing
net income = 80
depreciation = 23
WCI = the answer is 41…HOW DID THEY GET THAT? There is no accounts receivable, I guess inventory is net ppe (not sure about that), there is no accounts payable, and there is no accrued liabilities….so I’m screwed!
FCI = the answer is 38, but I can’t figure out how they got 38….screwed again
Net borrowing = there is no notes payable and long term debt is 0, so I’m screwed on NB, too.
That’s why I’ve given up on FCI, WCI a million times
_____
Page 446, #20
FCFF =
net income = 485
depreciation = 270
interest = 195(1-.32) = 132.6
WCI = increase in a/r + increase in inventory - increase in accounts payable - increase in accrued taxes and liabilities = 57 (yes, got it!)
FCI = 523
FCFF = 308 - yes, got it!
and I even got NB when computing FCFE.
Maybe somebody can help me with computing FCFF with #13
Gracias

stockjaguar

440 #13A
Current Assets Change =326-201=125
Current Liabs (all non-interest bearing Change)=141-57=84
Change in WL = 125-84 = 41
Fixd Cap Investment = they gave it to you at the bottom as 38 = Capital Exp.
446 #20
Change in CA = 1988-1806=182
Change in Cash + Cash Equiv = 372-315 = 57
Net Change in CA = 182 - 57 = 125
Change in Total CL =1090 - 1007 = 83
Change in Notes Payable = 465 - 450 = 15
Net Change in CL = 83 - 15 = 68
WCI = 125 - 68 = 57
FCI=Change in Gross Fixed Asset = 4275 - 3752 = 523

lunarfollies

be sure to check the errata. on page 428, problem 2, in the first calcuation of solution, the numerator should read FCFF instead of FCFE. i don’t think this has anything to do with your questions but thats just one of many errors in the text

IAmNeil

– Q13:
- if it helps at all: try to remember, that your change in WC can also be calculated using current assets and liabilities as done in this example (there are plenty of WC topics that discuss the different formulas and possible confusion about it).
- As far as your FCInv of 38 goes: recall that FCInv = Increase in Gross Fixed Assets. Gross FA = Net FA + Acc. Depreciation. In this Question they give us Net FA, so taking the difference is not enough, we have to include the depreciation accumulated in the current year as well. so youll have to add the current depreciation expense to the current Net FA and subtract last years Net FA. Mathematically speaking (Change Gross FA) = (Change Net FA) + (Change Acc. Depreciation). Change in Net FA here is 489-474 = 15 and Change Acc. Depreciation is the current expense of 23 – 23+15 = 38
But for simplicity, it was also given at the bottom of the page like its been said above.