Fin 300 Chapter Practice #2 (Chapter 2)

Williamsburg Markets has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year?

Change in NWC = −$1,356 − (−$2,662) Change in NWC = $1,306 NCS = −$382 + 1,611 NCS = $1,229 FCF = CFA = $4,267 − 1,306 − 1,229 FCF = $1,732

Noncash items refer to:

Expenses that do not directly effect cash flows

Depreciation for a tax-paying firm:

Increase Expenses and Lower Taxes

Which one of the following is an expense for accounting purposes but is not an operating cash flow for financial purposes?

Interest Expense

Net working capital is defined as:

Current Assets-Current Liabilities

The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

CFS = .28($272,600) − $75,000 CFS = $1,328

Rousey, Inc., had a cash flow to creditors of $17,280 and a cash flow to stockholders of $8,000 over the past year. The company also had net fixed assets of $49,880 at the beginning of the year and $57,340 at the end of the year. Additionally, the company had a depreciation expense of $12,420 and an operating cash flow of $51,605. What was the change in net working capital during the year?

Cash flow from assets = $17,280 + 8,000 = $25,280 Net capital spending = $57,340 − 49,880 + 12,420 = $19,880 Change in net working capital = $51,605 − 19,880 − 25,280 = $6,445

Adison Winery had beginning long-term debt of $41,681 and ending long-term debt of $47,134. The beginning and ending total debt balances were $51,589 and $56,804, respectively. The company paid interest of $4,489 during the year. What was the company's cash flow to creditors?

Cash flow to creditors = $4,489 − ($47,134 − 41,681) = −$964

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6 million, and the 2018 balance sheet showed long-term debt of $6.4 million. The 2018 income statement showed an interest expense of $160,000. What was the firm's cash flow to creditors during 2018?

Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $160,000 - ($6,400,000 - 6,000,000) Cash flow to creditors = -$240,000

At the beginning of the year, Vendors, Inc., had owners' equity of $48,485. During the year, net income was $4,925 and the company paid dividends of $3,585. The company also repurchased $7,335 in equity. What was the cash flow to stockholders for the year?

Cash flow to stockholders = $3,585 + 7,335 = $10,920

Webster World has sales of $13,800, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 23 percent?

EBIT = $13,800 − 5,800 − 1,100 EBIT = $6,900 Taxable income = $6,900 − 700 Taxable income = $6,200 Tax = .23($6,200) Tax = $1,426 OCF = $6,900 + 1,100 − 1,426 OCF = $6,574

For the past year, Kayla, Inc., has sales of $47,162, interest expense of $4,166, cost of goods sold of $17,359, selling and administrative expense of $12,146, and depreciation of $6,995. If the tax rate is 38 percent, what is the operating cash flow?

EBIT = $47,162 − 17,359 − 12,146 − 6,995 = $10,662 EBT = $10,662 − 4,166 = $6,496 Taxes = $6,496(.38) = $2,468 OCF = $10,662 + 6,995 − 2,468 = $15,189

JJ Enterprises has inventory of $11,600, fixed assets of $22,400, total liabilities of $12,900, cash of $1,900, accounts receivable of $8,700, and long-term debt of $6,500. What is the net working capital?

NWC = $1,900 + 8,700 + 11,600 − ($12,900 − 6,500) NWC = $15,800

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

Net capital spending = $209,411 − 218,470 + 42,822 Net capital spending = $33,763

Teddy's Pillows had beginning net fixed assets of $470 and ending net fixed assets of $548. Assets valued at $318 were sold during the year. Depreciation was $40. What is the amount of net capital spending?

Net capital spending = $548 (ending net fixed assets) + 40 (Depreciation) - 470 (beginning net fixed assets) Net capital spending = $118

Smashed Pumpkins Co. paid $224 in dividends and $645 in interest over the past year. The company increased retained earnings by $540 and had accounts payable of $726. Sales for the year were $16,650 and depreciation was $764. The tax rate was 40 percent. What was the company's EBIT?

Net income = $224 + 540 = $764 EBT = $764/( 1 − .40) = $1,273 EBIT = $1,273 + 645 = $1,918

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

Net income = ($487,000 − 263,000 − 26,000 − 42,000)(1 − .21) Net income = $123,240

At the beginning of the year, Trees Galore had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year?

Net new borrowing = ($72,415 − 13,870) − ($68,847 − 15,932) Net new borrowing = $5,630

A balance sheet has total assets of $1,588, fixed assets of $1,106, long-term debt of $588, and short-term debt of $177. What is the net working capital?

Net working capital = ($1,588 − 1,106) − $177 = $305

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

Noncash expenses = Depreciation = $1,611

Griffin's Goat Farm, Inc., has sales of $694,000, costs of $345,000, depreciation expense of $42,000, interest expense of $24,000, and a tax rate of 21 percent. What is the net income for this firm?

The income statement for the company is: Income Statement Sales $694,000 Costs $345,000 Depreciation $42,000 EBIT $307,000 Interest $24,000 EBT $283,000 Taxes (21%) $59,430 Net income $223,570