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Net Cash Flow: The Preferred Measure of Return
1. d
2. c. The most likely outcome is the "modal" outcome, the one that has the gr ity of occurrence. The probability-weighted expected value is the sum of the possible outcomes times the probability of occurrence of each.
3. True
4. 'i'rue
5. The Ibbotson data used in CAPM and the build-up model matches to net cash flow.
6. Solution: Net cash flow to equity:
Net income $930,000
+ Noncash charges 100,000
- Capital expenditures 120,000
- Additions to net workine capital* 20,000
to equity .$890,00.0
♦Working capital requirement 0.08 x $9,000,000 = S 720,000
Current assets: $ 1,000,000
Minus current liabilities _$300,000
$700,000
equired addition to working capital: 8720,000 8700,000 ~ $20,000
7. Solution: Net cash flow to invested
Net income $930,000
+ Noncash charges 100,000
Capital expenditures 120,000
- Additions to net working capital 20,000
+ Interest expense ($50,000 x f 1 -0.401) 30,000
Net cash flow to invested capital $920,000
Solution: |
||
S100 x |
0.10 : |
= $10 |
0 x |
0.20 : |
0 |
+S100 x |
040 : |
= +$40 |
+S1.50 x |
0.20 : |
= +$30 |
+S200 x |
0.10 : |
= +$20 $80 |
9. $100
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Net Cash Flow: The Preferred Measure of Return