Question

W Mart, one of major retailers, reported cash flows and earning: Comprehensive income) for the firm from 2000 to 2006 (in million dollars). 2005 2006 2004 2000 2002 2003 2001 Cash flow 3,410 2,993 1,422 1,553 2,573 968 1,540 from operation Cash outflows for 3,792 3,332 3,506 1,526 2,150 4,486 894 investments (339) (104) (597) (1,966) (382) (1,913) Free cash flow 74 2,681 2,740 1,076 1,291 1,608 2,333 1,955 Comprehensive Income The above cash flows are unlevered cash flows. A. Why would such a profitable firm have such negative free cash flows? (8 points) What (Which factor) can explain the difference between W mart's cash flows B. and comprehensive earnings? (8 points) C. Is this a good firm to apply discounted cash flow analysis (DCF Model)to?

Answer 1

	2000	2001	2002	2003	2004	2005	2006	Total
Cash Flow	1,553	1,540	2,573	968	1,422	3,410	2,993
Cash Outflows	1,526	894	2,150	4,486	3,506	3,792	3,332
Investment	(1966)		(382)	(1,913)	(597)	(339)	(104)
Free Cash flow	1,076	2333	1,291	1,608	2,740	74	2,681
Total

As we observed W Mart is investing more than any other company in frequent basis. Need to understand is it long term investment or short term investment. If the investment is going to give long term return then it is correct move to invest