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Blockbuster case study

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Blockbuster case study
1. Below is the computed free cash flow without late fees for 2002-2004 and projected 2005.

2004
2003
2002
2005(projected)
Original OCF
1215.4
1430.3
1462.3
593
Less: EVF
(622.4)
(722.1)
(739.5)
0
Adjusted OCF
593
708.2
722.8
593

Original ICF
(1112.3)
(1024.6)
(1314.6)
(1112.3)
Original FCF
(18.8)
(335.5)
(199.2)
(18.8)
Beginning balance & exchange rate effects
233.4+12.6
152.5+10.7
200.2+3.8
330.3+12.6
Free Cash Flow w/o EVF
(292.1)
(488.7)
(587)
(195.2)
Free Cash Flow w/ EVF
330.3
233.4
152.5
N/A

Analysis:
The analysis of Blockbuster’s cash flows support its decision. Without Extended Viewing Fees (late fees), and taking the all negative free cash flows among 2004, 2003, 2002 into account, Blockbuster would be performing worse than that with late fees. However, the trend was a continuous increase in cash flows, even if it is negative among all years. By taking tax effects into account, the free cash flow without EVF would be much lower than the ones shown in analysis.

2.

2005
2005(projected)
Original OCF
(70.5)
593
Adj Rental Liability Purchases
Already added RLP
(798.4)
Adj OCF
(70.5)
(205.4)

Original ICF
(114.2)
(1112.3)
Adj Rental Liability Purchases
Already minus RLP
798.4
Adj ICF
(114.2)
(313.9)

Original FCF
138.3
(18.8)
Beginning balance & exchange rate effects
330.3+(-7.7)
330.3+12.6
Free Cash Flow
276.2
(195.2)

In 2005 10k, 2004 cash flow was restated. Rental Liability Purchases was recognized as an Operating Activity other than Investing Activities. Thus, changes was made to consolidate in the table above. In addition, taking those known unexpected reasons, i.e. some large fees, higher interest costs, lower Capital expenditures and more cash went into working paper, into account, Blockbuster was not benefited from the no late fee policy, and they were preforming better by the increase of 2005 cash flow of $568.3(276.2-(292.1))
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