Only FCinv was financed by debt according to the question so all of WCinv has to come out of equity.
I tried that and STILL didn’t get an answer
which of the inputs wasn’t sustainable in the long run? or was concerning? or something like that?
bannisja Wrote: ------------------------------------------------------- > which of the inputs wasn’t sustainable in the long > run? or was concerning? or something like that? The “worrying” item was WCinv. It was an inflow in the current year which should not be sustainable in the long run.
+1 with nirjraina
Agreed.
Which is why I used FCFE = NI - (1-D)*(FCInv) + Depr - WCInv Since only 18.75% of FCInv is funded by new borrowing. I think Dotslash is saying the same thing, and also nirjraina, perhaps?
I am pretty sure W/C was also financed. If not -1
Also what was interesting (read: tricky) about this question was that the answer choice that I got by discounting it to equity risk rate (vs wacc) was spot on… if I had applied the same FCFE and used the WACC I would of gotten another answer choice (again spot on). So I think the trick was the discount rates. W/C was funded with debt as well. Otherwise there is 0% chance I could of come with an answer that fit the situation I just described.
Guys it is B, 2310, I am 100% positive Using discounting you get like 2253, but you have to add cash later (remember company value = operating + non operating assets) so 2253 + 57 = 2310 First i had no match either so cheeked many times and then remembered that concept
I believe the question said that the debt was only applied to the Fixed Capital investments.
was 2253 a choice?