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Cash Flow calculations

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Nabors, Inc.

2005 and 2006 Balance Sheets

($ in millions)

2005 2006 2005 2006

Cash $ 310 $ 405 Accounts payable $ 2,720 $ 2,570

Accounts rec. 2,640 3,055 Notes payable 100 0

Inventory 3,275 3,850 Total $ 2,820 $ 2,570

Total $ 6,225 $ 7,310 Long-term debt 7,875 8,100

Net fixed assets 10,960 10,670 Common stock 5,000 5,250

Retained earnings 1,490 2,060

Total assets $17,185 $17,980 Total liab.& equity $17,185 $17,980

Q3. What is the change in the net working capital from 2005 to 2006?

$1,235
$1,035
$1,335
$3,405
$4,740

4.
What is the amount of the non-cash expenses for 2006?

$57
$630
$845
$1,370
$2,000

5. What is the amount of the net capital spending for 2006?

-$290
$795
$1,080
$1,660
$2,165

6. What is the operating cash flow for 2006?

$845
$1,930
$2,215
$2,845
$3,060

7. What is the cash flow of the firm for 2006?

$430
$485
$1,340
$2,590
$3,100

8. What is the amount of net new borrowing for 2006?

-$225
-$25
$0
$25
$225

9. What is the cash flow to creditors for 2006?

$405
-$225
$225
$405
$630

10. What is the operating cash flow for 2006?

$143
$297
$325
$353
$367

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The solution explains various cash flow calculations for Nabors Inc

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Calculate the Certainty Equivalent Cash Flows and NPV

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The Board liked an analysis you did on valuation and agreed to proceed with the expansion plan. Your CFO, investment bankers, and consultants have all been working on the cost and benefits of various expansion options. They have agreed on an option that will see simultaneous expansion into 5 domestic markets (Chicago, Dallas, Miami, New York, and Charlotte), Germany, and Brazil. The CFO has developed cost and benefits of the scenario in a spreadsheet and has asked you to review it.

Look at the spreadsheet attached and use present value analysis to discount the cash flows. Determine if the project is a net positive or negative impact on the firm, NPV. Calculate the certainty equivalent cash flows and NPV. What kind of questions would you ask the CEO about economic assumptions? Articulate the economic and political risk with the strategy and list options to overcome. Should this approach to expansion be adopted? (Answer using CE cash flows and non-CE cash flows.)

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