FIN 320 – Exam 1 Complete Study Guide - A+ Verified Notes & Solved Questions

A+ Graded Paper
FIN 320 – Exam 1 Complete Study Guide | A+
Verified Notes & Solved Questions

Questions and Mark scheme


Version: Final 1.1

, NOWC - ✔✔operating current assets - operating current liailites

or

it is the working capital acquired with investor-supplied funds



Total net operating capital - ✔✔NOWC+ operating long-term assets

including land, buildings, factories, equipment



net investment in operating capital - ✔✔net operating capital from 2012- net operating capital from 2011



free cash flow - ✔✔NOPAT- Net investment in operating capital



FCF can also be calculated... - ✔✔(NOPAT+dep) - ( Net investment in operating capital+ dep)

or

operating cash flow- gross investment in operating capital



Five good uses for FCF - ✔✔1. pay interest to debt holders

2. repay debt holders; pay off some of the debt

3. pay dividends to shareholders

4. repurchase stock from shareholders

5. buy short-term investments or other nonoperating assets



Steps to calculating FCF - ✔✔1. calculate NOPAT

2. calculate NOWC

3. calculate total net operating capital

4. calculate net investment in operating capital

5. FCF= NOPAT- step 4



ROIC - ✔✔(NOPAT)/ operating capital

if the ROIC exceeds the rate of return required by investors then a negative FCF is just high growth, nothing to worry
about