Homework

Growth can summarize various aspects of a firm's __________ and ___________ policies. Legal, expansion Marketing, investment Profitability, expansion Financial, investment Goals, marketing

Financial, investment Growth can summarize various aspects of a firm's financial and investment policies.

Grey Wolf, Inc., has current assets of $2,310, net fixed assets of $10,700, current liabilities of $1,420, and long-term debt of $4,120 . a.What is the value of the shareholders' equity account for this firm? b.How much is the company's net working capital? )

a) 7470 The owners' equity is a plug variable. We know that total assets must equal total liabilities and owners' equity. Total liabilities and owners' equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owners' equity, the remainder must be the equity balance, so: Owners' equity = Total liabilities and owners' equity − Current liabilities − Long-term debt Owners' equity = $13,010 − 1,420 − 4,120 Owners' equity = $7,470 -------------------------------------------- b)890 Net working capital is current assets minus current liabilities, so: NWC = Current assets − Current liabilities NWC = $2,310 − 1,420NWC = $890

The December 31, 2018, balance sheet of Justin's Golf Shop, Inc., showed current assets of $1,105 and current liabilities of $915. The December 31, 2019, balance sheet showed current assets of $1,320 and current liabilities of $995. What was the company's 2019 change in net working capital, or NWC?

135 The change in net working capital is the end of period net working capital minus the beginning of period net working capital, so: Change in NWC = NWCend - NWCbeg Change in NWC = (CAend - CLend) - (CAbeg - CLbeg) Change in NWC = ($1,320 - 995) - ($1,105 - 915) Change in NWC = $135

Sidewinder, Inc., has sales of $686,000, costs of $341,000, depreciation expense of $86,000, interest expense of $51,000, and a tax rate of 23 percent. What is the net income for this firm?

160,160 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income Statement Sales$686,000 - Costs 341,000 - Depreciation 86,000 ------------------------ EBIT $259,000 - Interest 51,000 ------------------ Taxable income $208,000 - Taxes (23%) 47,840 ---------------------- Net income$160,160

Benson, Inc., has sales of $41,330, costs of $13,470, depreciation expense of $2,870, and interest expense of $2,090. The tax rate is 23 percent. What is the operating cash flow, or OCF?

22,593 To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income Statement Sales$41,330 - Costs 13,470 - Depreciation 2,870 ----------------------- EBIT$24,990 - Interest 2,090 ------------------------ Taxable income$22,900 - Taxes (23%) 5,267 --------------------------- Net income$17,633 Now we can calculate the OCF, which is: OCF = EBIT + Depreciation - Taxes OCF = $24,990 + 2,870 - 5,267 OCF = $22,593

The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,410,000, $142,000 in the common stock account, and $2,670,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet showed long-term debt of $1,600,000, $152,000 in the common stock account and $2,970,000 in the additional paid-in surplus account. The 2019 income statement showed an interest expense of $95,000 and the company paid out $147,000 in cash dividends during 2019. The firm's net capital spending for 2019 was $980,000, and the firm reduced its net working capital investment by $127,000. What was the firm's 2019 operating cash flow, or OCF?

595,000 The cash flow to creditors is the interest paid, minus any net new borrowing, so: Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $95,000 - ($1,600,000 - 1,410,000) Cash flow to creditors = -$95,000 The cash flow to stockholders is the dividends paid minus any new equity raised. So, the cash flow to stockholders is: (Note that APIS is the additional paid-in surplus.) Cash flow to stockholders = Dividends paid - Net new equity Cash flow to stockholders = Dividends paid - [(Commonend + APISend) - (Commonbeg + APISbeg)] Cash flow to stockholders = $147,000 - [($152,000 + 2,970,000) - ($142,000 + 2,670,000)] Cash flow to stockholders = -$163,000 We know that cash flow from assets is equal to cash flow to creditors plus cash flow to stockholders. So, cash flow from assets is: Cash flow from assets = Cash flow to creditors + Cash flow to stockholders Cash flow from assets = -$95,000 - 163,000 Cash flow from assets = -$258,000 We also know that cash flow from assets is equal to the operating cash flow minus the change in net working capital and the net capital spending. We can use this relationship to find the operating cash flow. Doing so, we find: Cash flow from assets = OCF - Change in NWC - Net capital spending -$258,000 = OCF - (-$127,000) - $980,000 OCF = -$258,000 - 127,000 + 980,000 OCF = $595,000

Rotweiler Obedience School's December 31, 2018, balance sheet showed net fixed assets of $1,740,000, and the December 31, 2019, balance sheet showed net fixed assets of $2,070,000. The company's 2019 income statement showed a depreciation expense of $324,000. What was the company's net capital spending for 2019?

654,000 Net capital spending is the increase in net fixed assets, plus depreciation. Using this relationship, we find: Net capital spending = NFAend - NFAbeg + Depreciation Net capital spending = $2,070,000 - 1,740,000 + 324,000 Net capital spending = $654,000

Sidewinder, Inc., has sales of $690,000, costs of $342,000, depreciation expense of $87,000, interest expense of $52,000, and a tax rate of 24 percent. The firm paid out $82,000 in cash dividends. What is the addition to retained earnings?

76,840 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income Statement Sales$690,000 - Costs 342,000 - Depreciation 87,000 ------------------------ EBIT$261,000 - Interest 52,000 ---------------------- Taxable income$209,000 Taxes (24%) 50,160 ------------------------- Net income$158,840 The dividends paid plus the addition to retained earnings must equal net income, so: Net income = Dividends + Addition to retained earnings $158,840 = $82,000 + Addition to retained earnings Addition to retained earnings = $158,840 - 82,000 Addition to retained earnings = $76,840

When evaluating financial planning steps, we must consider all of the following, except: The planning horizon for the next 2 to 5 years. The project horizon for the next 30 to 90 days. How all small projects are added up for one big project. Identifying the total need investment for the plan. Sets of assumptions for various scenarios..

The project horizon for the next 30 to 90 days. Financial Planning Steps 1) We first find the planning horizon which is financial planning for the coming 2 to 5 years 2) Then we find the Level of aggregation in which all small projects are added up for one big project. This includes the total need investment in drawing up a financial plan. 3) Lastly we find alternative sets of assumptions being worst case, normal case, and best case scenarios. The project horizon for the next 30 to 90 days is important but, is not part of the financial planning process as defined.

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4.5 million. The machinery can be sold to the Romulans today for $6.7 million. Klingon's current balance sheet shows net fixed assets of $3.3 million, current liabilities of $760,000, and net working capital of $135,000. If all the current accounts were liquidated today, the company would receive $875,000 cash. a.What is the book value of Klingon's total assets today? b.What is the sum of the market value of NWC and the market value of fixed assets?

To find the book value of assets, we first need to find the book value of current assets. We are given the NWC. NWC is the difference between current assets and current liabilities, so we can use this relationship to find the book value of current assets. Doing so, we find: NWC = Current assets - Current liabilities Current assets = $135,000 + 760,000 Current assets = $895,000 A) Now we can construct the book value of assets. Doing so, we get: Book value of assets Current assets $895,000 + Fixed assets 3,300,000 ---------------------------- Total assets$ 4,195,000 B) The market value of the NWC and the fixed assets are given, so: Market value of assets NWC $875,000 + Fixed assets 6,700,000 ----------------------------- Total assets$ 7,575,000