. Cash flow from operations (CFO) already reflects changes in working capital items, therefore Paschel’s first comment is correct. EBITDA has the non-cash charges of depreciation and amortization added back, so Covey’s statement is incorrect, not all non-cash charges will need to be added back. Net borrowing is added back for FCFE not FCFF, so Paschel’s second statement is incorrect.
. Depreciation has already been added back to EBITDA, though there may be other items that still need to be added back.
. Adjusting for net borrowing is not necessary for FCFF (just FCFE).

LeCompte violated Requirement 6, Relationships with Subject Companies, by sharing the full research report with NanoMem. Sharing any section of a research report that might communicate the analyst’s proposed recommendation, rating, or price target is prohibited by the Research Objectivity Standards. Sharing historical factual information, on the other hand, is not a violation.
LeCompte shared with UniFlash management only the part of her report on UniFlash that provides factual information.

. Covey’s statement is based on the idea that a firm’s stock price increases if it is the target of an acquisition (i.e., a control premium). Consequently, when the acqui- sition failed with no apparent future threat of a takeover, the stock price decreases as the control premium vanishes. . The subsidiary of a conglomerate generally has a value that is below its stand-alone value due to a conglomerate discount.
. Pairs trading is a relative value strategy that does not consider the actual intrinsic value of a given firm.

An HHI greater than 1,800 indicates that an industry is highly concentrated. Should the HHI in a highly concentrated industry change by 50 or more, a governmental challenge to a particular business combination is very likely. In this instance, the industry is highly concentrated and the HHI changes by 90, making Whelan’s second conclusion incorrect. A government challenge is likely.
Whelan’s second conclusion is not correct.
Whelan’s conclusion that the industry is highly concentrated is correct.

1 Drawbridge sold AUD 5 million forward to the settlement date at an all-in forward price of 0.8940 (USD/AUD).
2 To mark the position to market, Drawbridge offsets the forward transaction by buying AUD 5 million three months forward to the settlement date.
3 For the offsetting forward contract, because the AUD is the base currency in the USD/AUD quote, buying AUD forward means paying the offer for both the spot rate and forward points.
I. The all-in three-month forward rate is calculated as 0.9066 – 0.00364 = 0.90296
II. This gives a net cash flow on settlement day of 5,000,000 × (0.8940 – 0.90296) = –USD44,800 (This is a cash outflow because Drawbridge sold the AUD for- ward and the AUD appreciated against the USD).
4 To determine the mark-to-market value of the original forward position, calculate the present value of the USD cash outflow using the three-month USD discount rate: –USD44,8000/[1 + 0.0023(90/360)] = –USD44,774.
The present value of the cash flow was not calculated (step 4 of
calculation).
The cash flow was calculated using the bid rate instead of the offer rate.
1 The all-in three-month forward rate = 0.9062 – 0.00368 = 0.90252
2 This gives a net cash flow on settlement day of 5,000,000 × (0.8940 – 0.90252) = – USD42,600, and the present value is calculated as –USD42,600/[1 + 0.0023(90/360)] = –USD42,576.