Use the data in charts to calc calculate FCFE: There’s a bunch of different ways to get there, I like to get FCFF first then go to FCFE. They want to do it different and go from EBITDA - thats fine too. FCFE = EBITDA(1-tax rate) + Dep (tax rate) - FCinv - WCinv + Net Borrowing First error: Calculating WCinv. You have to calc the change year over year, but you dont count changes in cash, or changes in notes payable (ref R43 p 406). They simply did 2010 CA-CL minus 2009 CA-CL and got 3.30. I think you should get 1.8, as AR increases 11.5 (use) Inventory increases 17.2 (use) and AP increases 30.5 (source). All together thats a net USE of cash of 1.8. Second error: Calculating Net Borrowing: Usually this would just be given on the cash flow statement, but not today. You see that y/y LTD increased by 7.5 and Notes Payable increased by 5. This means we borrowed 7.5+5=12.5… CFAI for some reason decided to subtract and did 7.5-5=2.5 Did any one else pick up on these errors. Are there other errors in the Moch you’ve noticed? Matt
**** PLEASE DISREGARD FIRST MESSAGE **** WCinv is a net SORUCE of cash not USE. **** PLEASE DISREGARD FIRST MESSAGE **** Use the data in charts to calc calculate FCFE: There’s a bunch of different ways to get there, I like to get FCFF first then go to FCFE. They want to do it different and go from EBITDA - thats fine too. FCFE = EBITDA(1-tax) + Dep (tax) - Interest(1-tax) - FCinv - WCinv + Net Borrowing First error: Calculating WCinv. You have to calc the change year over year, but you dont count changes in cash, or changes in notes payable (ref R43 p 406). They simply did 2010 CA-CL minus 2009 CA-CL and got 3.30. I think you should get 1.8, as AR increases 11.5 (use) Inventory increases 17.2 (use) and AP increases 30.5 (source). All together thats a net SOURCE of cash of 1.8. Second error: Calculating Net Borrowing: Usually this would just be given on the cash flow statement, but not today. You see that y/y LTD increased by 7.5 and Notes Payable increased by 5. This means we borrowed 7.5+5=12.5… CFAI for some reason decided to subtract and did 7.5-5=2.5 FCFE = EBITDA(1-tax rate) + Dep (tax rate) - Interest(1-tax) - FCinv - WCinv + Net Borrowing = 275(.65) + 82.5(.35) - 16(1-0.35) - 165.3 - (-1.8) + 12.5 = 178.75 + 28.87 -10.38 - 165.3 + 1.8 + 12.5 = 46.24 46.24/50 = .92 --> I guess I’d go with C. Does this upset anyone, it grinds my gears. Are there other errors in the Moch you’ve noticed? Matt