Case Solutions for Corporate Finance Ross, Westerfield, and Jaffe 9th Edition

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Case Solutions

Corporate Finance

Ross, Westerfield, and Jaffe
9th edition

CHAPTER 2
CASH FLOWS AT WARF COMPUTERS

The operating cash flow for the company is: (NOTE: All numbers are in thousands of dollars)

OCF = EBIT + Depreciation – Current taxes
OCF = $1,332 + 159 – 386
OCF = $1,105

To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was:

| |Capital spending | | |  |Ending net fixed assets |$2,280 | |  |– Beginning net fixed assets |1,792 | |  |+ Depreciation | 159 | |  | Net capital spending |$ 647 |

And the change in net working capital was:

|  |Change in net working capital | |  |Ending NWC |$728 | |  |– Beginning NWC | 586 | |  | Change in NWC |$142 |

So, the cash flow from assets was:

|  |Cash flow from assets | | |  |Operating cash flow |$1,105 | |  |– Net capital spending |647 | |  |– Change in NWC | 142 | |  | Cash flow from assets |$316 |

The cash flow to creditors was:

|  |Cash flow to creditors |  | |  |Interest paid | $95 | |  |– Net New Borrowing | 20 | |  | Cash flow to Creditors | $75 |

The cash flow to stockholders was:

|  |Cash flow to stockholders |  | |  |Dividends paid | $212 | |  |– Net new equity raised | –29 | |  | Cash flow to Stockholders | $241 |

The accounting cash flow statement of cash flows for the year was:

|  |Statement of Cash Flows | |  |Operations | | |  |Net income |$742 | |  |Depreciation |159 | |  |Deferred taxes |109 | |  |Changes in assets and liabilities | | |  | Accounts receivable |(31) | |  | Inventories |14 | |  | Accounts payable |17 | |  | Accrued expenses |(99) | |  | Other |(9) | |  |Total cash flow from operations |$902 | |  |  | | |  |Investing activities | | |  | Acquisition of fixed assets |$(786) | |  | Sale of fixed assets |139 | |  |Total cash flow from...
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