Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 8, Problem 7P
Castle View Games would like to invest in a division to develop software for video games. To evaluate this decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates (in millions of dollars):
Assuming that Castle View currently does not have any working capital invested in this division, calculate the cash flows associated with changes in working capital for the first five years of this investment.
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Gamestop wants to invest in a new division to develop software for video games. The company is
evaluating this decision by projecting the working capital needs for the operation. The CFO has developed
the following estimates (in millions of dollars). Assume that Gamestop does not currently have any working
capital invested in this division. Calculate the cash flows associated with the net working capital and
changes in net working capital for the first five years of this investment.
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Cash
6.
12
16
15
14
Accounts
21
26
24
25
24
Receivable
Inventory
Accounts
5
10
12
15
17
19
25
25
32
Payable
NWC
ANWC
Castle View Games would like to invest in a division to develop software for a soon-
to-be-released video game console. To evaluate this decision, the firm firstattempts to
project the working capital needs for this operation. Its chief financial officer has
developed the following estimates (in millions of dollars):
Year 1
Year 2
Year 3
Year 4
Year 5
Cash
6.
12
15
15
15
Accounts receivable
21
22
24
24
24
Inventory
Accounts payable
5
7
10
12
13
18
22
24
25
30
If Castle View currently does not have any initial working capital invested in this
division, calculate the cash flows associated with changes in working capital for the
first five years of this investment.
3.
After analysing the financial data of Q-Constructions, you notice that they are trending in the right direction. A new 12-month construction proposal has come to the company worth $1,000,000 and an important question is whether it will be financially viable. They want you to analyse the proposal, in particular, the recommended cash flow schedule and to understand the key financial points during the construction project. The following cash flow schedule is summarised below.
To ensure that all upfront and on-going outlay costs are covered in advance, Q-Constructions incur an initial start-up cost of $200,000. The proposal states that they will receive a deposit from the client of 10% of the total project price at the beginning. They then receive four equal instalment payments of 20% of the total project price associated to project milestones from the client at the end of the 2nd, 6th, 8th and 10th month. Finally, they receive the last 10% project milestone on lock-up which occurs at the…
Chapter 8 Solutions
Corporate Finance
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 20PCh. 8 - Prob. 21P
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