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Corporate Finance - Math Problem Example

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Ans 1): After comparing the financial records of both years, we observe that the expansion didn't come up with a positive result because the company envisaged a big loss after it enjoyed profit a year before.
On the contrary, profit & loss account of Computron's company showed a net loss of $(95136) FY 2007 as compared to a net profit a year before of $87960, merely because of the increase in cost of good sold, which were $2864000 in the year 2006, which increased by $2.11 million or 73%, which suppressed the company to declare a net loss in the year 2007.
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Corporate Finance Math Problem
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Download file to see previous pages Liabilities on the other side also increased due to the expansion, while the equity deteriorated little bit in the year 2007 by 0.106 million because of the net loss of the company.
Ans-2): Cash flow statement shows that the account receivable head of the company was increased with a rapid pace in the year 2007, which showed that the company was involved in credit sales. Cash flow statement also showed that the company spent $0.711 million to acquire the fixed assets during expansion of their network.
The cash flow available to be distributed among the shareholders after the company has made all the investment in working capital and fixed assets to enhance the ongoing operation is called free cash flow (FCF).
Ans-4): The assets which are used in the operation of the business like inventory, long term operation assets and plant & Equipment are known as operating current assets. By contrast, the fund which comes from the suppliers and reported as account payable, accrued wages and accrued taxes are referred to as operating current liabilities.
Since both the ...
o be distributed among the shareholders after the company has made all the investment in working capital and fixed assets to enhance the ongoing operation is called free cash flow (FCF).

USES OF FCF:
It is used to:
Pay interest to debt holders.
Pay dividends to shareholders.
Repurchase stocks from the shareholders.
Repay debt holders, which had been paid partially before.
Buy marketable securities or other non-operating assets.


Ans-4): The assets which are used in the operation of the business like inventory, long term operation assets and plant & Equipment are known as operating current assets. By contrast, the fund which comes from the suppliers and reported as account payable, accrued wages and accrued taxes are referred to as operating current liabilities.





Net Operating Working Capital 2007 $





Operating Current Assets (Cash+Account Receivable inventories)
1926802


Operating Current Liability (Account Payables + Accruals)
608960


Net Operating Working Capital (Operating Current Assets - Operating Current Liabilities)
1317842


Net Operating Working Capital 2006 $



Operating Current Assets (Cash+Account Receivable+ inventories)
1075400

Operating Current Liability (Account Payables + Accruals)
281600

Net Operating Working Capital (Operating Current Assets - Operating Current Liabilities)
793800


Total Net Operating Capital 2007 $
Net Operating Working Capital (NOWC)
1317842
Operating Long Term Assets (OLTA)
939790
Total Net Operating Capital (NOWC - OLTA)
2257632


Total Net Operating Capital 2006 $
Net Operating Working Capital
793800
Operating Long Term Assets
344800
Total Net Operating Capital
1138600

Ans-5)

Net Operating Profit After Tax (NOPAT) $
2007
2006
Earning Before Interest and Taxes (EBIT)
(158560)
146600
Tax Rate = 40%
0.4
0.4
NOPAT ...Download file to see next pagesRead More
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