Instructor key — Module 1: DCF Foundations and the Acquisition Value Bridge
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
EBIT is 320, D&A 45, CapEx 70, NWC investment 30 and operating tax 25%. Calculate UFCF.
Calculated result: 185.00000000 ($000, except where the question requests a ratio or return). NOPAT 240; reverse 45 noncash charge, then subtract both investments. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Solution: Taxes are $60,000, leaving NOPAT of $180,000. Add $40,000, subtract $55,000, and subtract the $25,000 NWC increase. UFCF is $140,000. Principal repayment belongs in financing analysis, so it does not reduce this enterprise cash-flow measure.
Solution: Normalized EBIT is $200,000 + $150,000 − $120,000 = $230,000. The full add-back produces $350,000 while assuming necessary management labor costs nothing. The sustainable improvement is only $30,000. A working buyer still supplies economically valuable labor.
Solution: NWC investment rises from $45,000 to $85,000. UFCF falls from $307,500 to $267,500. EBIT does not change because the revenue was already earned. This is a timing sensitivity, not a bad-debt assumption; uncollectibility would require additional accounting and valuation analysis.
Solution: Present value is $100,000 / 1.25² = $64,000. Equity value is $1,500,000 + $40,000 − $300,000 = $1,240,000. The first calculation adjusts for timing and required return; the second allocates operating value between financing claims. Neither calculation establishes the buyer's total funding requirement.