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practice midterm 1

# practice midterm 1 - FBE 421 SPRING 2011 MIDTERM#1 PRACTICE...

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FBE 421: S PRING 2011 M IDTERM #1 P RACTICE P ROBLEMS Question 1: You are an internal analyst at Sigma Corporation. You have just obtained the most recent income statement and balance sheet for your company (below). Please answer the following questions: (1) Compute Earnings Before Interest and Taxes (EBIT) in each year (2008, 2009, and 2010). (2) What is the firm’s tax rate? (3) Compute Capital Expenditures (CAPEX) in 2009 and 2010. (4) Compute Operating Net Working Capital in each year (2008, 2009, and 2010). (5) What is the Firm Free Cash Flow (Firm FCF) in 2009 and 2010, respectively? State the formula and show your work. (6) What is the Equity Free Cash Flow (Equity FCF) in 2009 and 2010, respectively? State the formula and show your work. (7) Describe, in words, how Equity FCF differs from Firm FCF. (8) Describe, in words, how EBIT(1-t) differs from Net Income.

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Question 2: Nancy is an analyst working on the valuation of Lambda Corporation. She has just downloaded the cash flow statement from the company (below). She has a sequence of questions on the statement and you need to help her clarify the answers. Fiscal Year Ended Oct. 3, 2010 Sept. 27, 2009 Sept. 28, 2008 Operatign Activities: Net Income (loss) 421,500 391,500 311,700 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 540,800 563,300 594,500 Stock-based Compensation 92,600 83,200 75,000 Changes in operating accounts: Inventories 80,000 20,000 (30,000) Accounts Payable (3,600) (53,000) (63,900) Net cash flows from operating activities 1,131,300 1,005,000 887,300 Investing Activities: Additions to Plant, Property and Equipment (918,300) (902,200) (817,100) Marketable Securities Purchases (1,000) (10,000) (8,000) Net cash flows from investing activities (919,300) (912,200) (825,100) Financing Activities: Proceeds from issuance of debt 34,500 21,300 62,100 Repayments of debt (35,100) (22,400) (63,900) Cash dividends paid (158,100) (158,100) (158,100) Repurchase of common stock (125,000) (33,000) 0 Net cash flows from financing activities (283,700) (192,200) (159,900) Net increase/(decrease) in cash (71,700) (99,400) (97,700) and cash equivalents Cash and cash Equivalents: Beginning of period 302,900 402,300 500,000 End of period 231,200 302,900 402,300 Lambda Corporation, Consolidated Statement of Cash Flows (\$ thousands) Nancy also gathered the following additional information about the company: Fiscal Year Ended Oct. 3, 2010 Sept. 27, 2009 Sept. 28, 2008 Interest Expenses 50,000 32,000 23,700 Tax rate 34% 34% 34% Lambda Corporation, Additional Information (\$ thousands)

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1) Why are there adjustments between the Net Income and the Cash Flow from Operations? What are these adjustments accounting for? 2) Explain the inventory adjustments. What happened to inventories in each year?
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practice midterm 1 - FBE 421 SPRING 2011 MIDTERM#1 PRACTICE...

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