The change in WC has been adjusted for cash and notes in my answer sheet: -[(316.2-128.2) – (2.87.5-97.7)] = (Current assets - Cash, 316.2) - ( Account payable only, 128.2). This is good!
yazena Wrote: ------------------------------------------------------- > (2.87.5-97.7)] = (Current assets - Cash, 316.2) - It’s astonishing that the CFAI can’t even get their errata correct. 2.87.5? I know it’s a typo, but seriously?
can someone direct us to where we can read the explanation from the errata? would be very helpful. thanks.
login and search for “mock exam.” from there, access the mock and you’ll see a link to the errata.
motherf’er… i just spent 15 mins going crazy over this problem…
Me too! It’s little crap like this that is going to kill on the exam.
Listen guys, the explanation given by CFAI is correct and their reasoning follows sound accounting principles. The net decrease in WCInv is 1.8. You count everything in working capital except cash and borrowings. The net increase in FCInv is 12.5, which includes changes to both current and non-current debt. On the exam, they may very likely stuff short term debt in current liabilities. If called upon to calculate FCFF and you include short term debt in WCInv, you’ll get the wrong answer.
The notes payable in current liabilities is a very common situation in the real world. GAAP requires that the portion of all long-term debt that is due in the upcoming operating cycle be classified as “current.” The increase in borrowing of $5 (the liability increased) is a source of free cash in the FCFE (but not the FCFF) calculation. Safado Wrote: ------------------------------------------------------- > I’m sure glad there are people smarter than me on > this forum. I was pulling my hair trying to figure > this out. > > I agree that cash/cash equivalents should not be > made part of WC. The increase in Notes payable is > deceptive because it falls as a current liability, > meaning that it’s increase could be viewed as a > repayment of debt, in this case 5. But, it can > also be viewed as having borrowed 5. I would have > said borrowed 5 had the increase in Notes payable > not been listed under current liabilities (payable > within 12 months). > > Can someone please clarify?
for the problem above this one, #50, why did cfai continued to use (1+g) when we already have the div for 2011 FCFE?
Sorry to beat this one to death, but shouldnt NI+Depr-FCinv-WCinv+Net Borrowing give the same answer? Unless I am missing something, it doesnt, which is how I remember FCFE.
Read the mock errata. WCInv = (CA-cash)-(CL-note) Net BR = 12.5
Thats not what I am referring to. I reviewed it already. Try the standard equation for FCFE using their calculations and substituting NI and Depr directly from the income statement. Get 51.5.
question asked to use specific tax rate… you need to use ebitda to addback tax on depreciation.
Why doesn’t the “investment in fixed capital” account for depreciation? You add back depreciation to calculate capital expenditure so the math should’ve been (1168.3 + 82.5) - 100.3 = -247.8 i.e. reference page 446 of vol 6. question 13 part A. Am I missing something or did CFAI miss that in their June 1 errata?