Instructions for Blockbuster

Effective 2005, blockbuster began a new policy of no late(a) fees. In late 2005, Blockbuster was experiencing financial distress and needed emergency financing to diaphragm afloat. The stock price dropped from $12 to $4, and the debt traded as junk.Question 1 Analyze the resolution of the decision, given the contribution that late fees made to prior years results. Does an summary of the connections cash leads support or refute the comp some(prenominal)s decision?What you need to do is as follows Get the selective information from 2002-2004, which should all be in the 2004 10-k, compute what free cash flow would have been without the late fees during 2002-2004, and project what 2005 free cash flow would be if the no late fee policy stays in bureau and business doesnt improve. posthumous fees are referred to by the euphemism extended think fees.Question 2 Is there any evidence that the 2005 results benefited from the no-late fees policy? If so, quantify the detail measuring stick you believe that the basic business improved due to the no late fees.Compare your projected 2005 free cash flow to the actual (from the 2005 10-k). convey the known reasons that 2005 results differed from the no-late expectation from question 1 i) there were some tumescent fees actually collected, ii) interest costs were higher than expected, iii) Capex was way lower than any reasonable expectation, and iv) a lot of cash went into working paper to replace the trade credit that was withdrawn. Use these four known unexpecteds to form an alter expectation for 2005, and then compare that number to the actual.Notes 1. It is important to remember the make of tax. In particular, free cash flow should change by the after-tax amount of late fees, not by the gross amount of late fees. 2. Late fees are referred to in the income statement by the euphemism extended viewing fees. 3. decoct on Blockbusters data anddont commence distracted by an analysis of Netflix. Avoid making testi monials about how lots better Netflix is than Blockbuster, or vice versa.