Question

you are building a dcf for a manufacturing business and observe the following historical end-of-period working capital balances on the balance sheet: 2017a inventory $2,987.0 prepaid expenses $189.0 accrued expenses $302.0 accounts payable $1,145.0 you assume that all working capital assets and liabilities will also grow at 5% annually over the next 5 years. what is the expected impact of working capital on unlevered free cash flow in 2022 of the forecast?

Answer 1

The expected impact of working capital on unlevered free cash flow in 2022 is an increase of $404.0.

Step-by-step explanation:

To determine the expected impact of working capital on unlevered free cash flow in 2022, we need to calculate the change in working capital from 2017 to 2022. We can assume that all working capital assets and liabilities will grow at 5% annually over the next 5 years.

Working capital is calculated as:

• Working Capital = Inventory + Prepaid Expenses - Accrued Expenses - Accounts Payable
• Working Capital 2017 = $2,987.0 + $189.0 - $302.0 - $1,145.0 = $1,729.0
• Working Capital 2022 = Working Capital 2017 * (1 + 0.05)^5 = $1,729.0 * (1.05)^5 = $2,133.0

The expected impact of working capital on unlevered free cash flow in 2022 is an increase of $2,133.0 - $1,729.0 = $404.0.