Capital Budgeting Question problems, examples, economic, 2011, 2010

ruchita

Hi folks,

I'm really getting caught up in one of the (ongoing) examples. I'm using the 2010 L2 book, but I figure things are going to be pretty identical in the 2011 book.

This has to do with Capital Budgeting, and specifically economic income. I'm having problems with one of the examples they have provided - it is "Table 30: Condensed Financial Statements for Granite Corporation." I am having a lot of trouble trying to figure out how the CFAI came up with their "Financing Cash Flows."

In the table, Financing cash flows are as follows:
Debt repayment : -11,525
Dividends/repurchases: -27,987

I cannot figure out how they came up with the debt repayment figure. I understand the total loan liability in the example is 109,747 (all of this is for year 1). Under "interest expense", I can correctly come up with the $9,146 value. However, I can't get the $11,525 repayment. If I amortize the loan, I get the correct interest expense but the principal amortization portion is $18,583. I'm using an interest rate of 8.333333 %.

Have I made this example clear? What am I missing?

Its frustrating as I'm running into the same issue when it comes to the problems (Questions 33-38). They provide the balance sheet and income statements, even providing the cash flows. But it bugs me that I cannot come up with these debt repayment numbers under "financing cash flows" for the life of me