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Requirement b: valuation of Poynins Co by using FCFF. In the question, we have “Poynins Co will require $20 mil investment of additional assets in Year 1, rising to $22 mil in each of Years 2 and 3, and to $25 mil annually from Year 4 onwards”
So in the FCFF table, I input “Investment in assets” in
Year 1 = -20
Year 2 = -2
Year 3 = 0
Year 4onwards = -3Im wrong. The answer is that
Year 1 = -20
Year 2 = Year 3 = -22
Year 4onwards = -25So I wonder that “Investment in assets” is THE EXCESS OF INVESTMENT IN ASSETS (22-20 = 2) or THE REQUIREMENT OF INVESTMENT IN ASSETS?
The wording of the question does make it clear that the amounts each year are for additional assets (and not just extra assets). It is not like working capital where it is normally just extra working capital.
Thank you John.
So it is the same method between “additional assets” in Investment and “extra WC” in WC, isnt it?
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