Calculating WCInv

CFA Level II Equities
#1

Hi all!

I’ve started the readings with Equity book, and I’m totally stuck on a question on page 351 (Question 13, reading 36). Would really appreciate your help for this: For part a)…how was the WCInv calculated? How did they get 41?

Another question…although the formula for FCFE states “+ Net borrowing”…how come we don’t add it? Is it because the D/E ratio stays the same?

#2

Howdy!

I haven’t the curriculum, but WCInv is just the increase in working capital. Do they give you changes in A/R, A/P, inventory, and so on?

I’m not sure what you’re asking. You _ do _ add net borrowing in the formula for _ FCFE _, but not in the formula for FCFF. The D/E ratio has nothing to do with it.

#3

Thanks for replying! All we are provided with is an income statement, with the following (for the years 2007 and 2008):

  • Revenue,
  • Depreciation,
  • other operating costs,
  • income before taxes,
  • taxes,
  • Net income
  • EPS
  • DPS
  • and common shares outstanding

In the balance sheet, for 07 and 08 we have:

  • Current assets (including cash)

  • Net PP&E

  • Long Term Debt

  • Total Liabilities

  • Shareholder’s E

  • Total Liabilities and Equity

  • and Capital Expenditures

The second part of the question in particular has to do with the solution provided…in the sense, that to calculate FCFE, they have:

FCFE = NI+Depreciation expense - Capital expenditures - WCInv

They left out Net borrowing… I read somewhere that if they keep the debt structure the same, net borrowing isnt added…or am i just missing something here altogether?

#4

I’d have to see the numbers to know what all they did, unfortunately.

Sorry.

#5

Not a prob…and thanks for trying. Given just the info I gave for Income statements and the B/Sheet, what would be the way to calculate the WCInv? Is there anyway at all?