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

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