Problem
I. You are trying to compute the change in working capital to use in computing free cash flow to the firm for Zapata Inc. The firm's total working capital increased from $100 million last year to $120 million this year.
However, this working capital includes cash and short term interest bearing debt. Last year's cash balance had $30 million in cash where only $10 where related to the operations and $15 million in short term debt. This year's cash balance has $20 million in cash where $15 million where related to the operations and $25 million in short term debt.
What effect did working capital have on your cash flow this year?
II. Lixit Inc. is a publicly traded company that reported $100 million in revenues in the most recent fiscal year that ended on December 31. You are valuing the company in April and know that the company reported $30 million in revenues for the first quarter, up from the $22 million it reported in revenues in the same quarter of the previous year.
In valuing Lixit today, which numbers would you use for your base year revenues, if you want an updated valuation?