I need help understanding the answer to question 20 on the first AM exam in Schweser Book 6 (Practice Exams Vol 1). I’m getting confused about the sign (positive or negative) on “net borrowings.” If you borrow more than you pay off, is the sign on net borrowings + or -? In this question, the firm borrowed more than they paid off, and the solution shows a negative sign on net borrowings. This seems wrong to me, but i wanted to get other’s opinions. Thanks, Elliott

If you borrow more than you pay - it should be a positive - you would add that in your FCF calculation… if you pay off more than you borrow - your net borrowings will be negative…

In that case, i think the answer in Schweser is wrong. Thanks.

That was tricky to me too. Schweser is right though, you have to notice that in the information box they state that notes payable issued was 5,866 and pricipal repayment of long term debt was 33,275. Therefore the net borrowing was negative as they repaid more than they borrowed.

I also answered wrongly… For me, when you say net borrowings = 100, it means really “+100” and not “either +100 or -100”. So I did not pay attention to the rest of the information… I don’t think we could have such trap in the real thing… This is a specialty of Sch, I think.

Well what made me see was that you couldn’t get an answer choice if you added the net borrowing rather than subtract if I remember correctly

Instead of “+ net borrowing” think of it this way: “- debt payment + new issuances” If you repaid more than you issued, it will be negative, and if you issued more than you repaid, it will be positive.

Smarshy Wrote: ------------------------------------------------------- > Instead of “+ net borrowing” think of it this way: > “- debt payment + new issuances” > > If you repaid more than you issued, it will be > negative, and if you issued more than you repaid, > it will be positive. But on Book 6 1AM, it has a positive number for net borrowing, which issuances is much less than repayements. But if you look at the components, then you can figure out which way to go

Yeah, it’s crap. You can get the answer right if you read the other info, but a positive net borrowings should mean you have a cash inflow. Hence the “Net”. That question really ticked me off.

Thanks for everyone’s input. I’m glad to see that i have the correct understanding of net borrowings and just interprited the question wrong, which was poorly written in my opinion.