Finance Ch 2 Practice Problems

The 2017 balance sheet of Dream, Inc., showed current assets of $3,205 and current liabilities of $1,475. The 2018 balance sheet showed current assets of $3,050 and current liabilities of $1,710. What was the company's 2018 change in net working capital, or NWC? (Do not round intermediate calculations.

2017 Current Assets 3,205 Current Liabilities - 1,475 =1730 2018 Current Assets 3,050 Current Liabilities - 1,710 =1340 1730-1340= (390)

Klingon Widgets, Inc., purchased new cloaking machinery five years ago for $5 million. The machinery can be sold to the Romulans today for $4.1 million. Klingon's current balance sheet shows net fixed assets of $2.8 million, current liabilities of $720,000, and net working capital of $217,000. If all the current assets and current liabilities were liquidated today, the company would receive $.99 million 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? (Do not round intermediate calculations.

Answer a. Book Value: Working Capital = $217,000 Current Liabilities = $720,000 Working Capital = Current Assets - Current Liabilities $217,000 = Current Assets - $720,000 Current Assets = $937,000 Total Assets = Current Assets + Net Fixed Assets Total Assets = $937,000 + $2,800,000 Total Assets = $3,737,000 Answer b. Market Value: Market value of Fixed Assets = $4,100,000 Market Value of NWC = $990,000 Market Value = Market value of NWC + Market value of Fixed Assets Market Value = $990,000 + $4,100,000 Market Value = $5,090,000

Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $231,000; Costs = $135,000; Other expenses = $7,900; Depreciation expense = $14,400; Interest expense = $14,300; Taxes = $20,790; Dividends = $11,500. In addition, you're told that the firm issued $5,800 in new equity during 2018 and redeemed $4,300 in outstanding long-term debt. a. What is the 2018 operating cash flow? b. What is the 2018 cash flow to creditors? c. What is the 2018 cash flow to stockholders? d. If net fixed assets increased by $28,000 during the year, what was the addition to NWC?

Answer a: OCF: Sales 231000 -Costs 135000 -Other Expenses 7900 -Depr 14400 EBIT 73700 -Interest 14300 EBT 59400 -Taxes 20790 Net Income 38610 EBIT + Depr - Taxes = OCF 73700 + 14400 - 20790 = 108890 Answer b: CFTC = Interest paid - Net New Borrowing 14,300-(4,300)=18,600 Answer c: CFTS = Dividends Paid - Net New Equity 11500-5800=5700 Answer d: NCS = Increase in fixed assets + depreciation 28000+ 14400= 42,400 Cash flow from assets = CFTC + CFTS 18600+5700=24300 Cash flow from assets = OCF - NCS - Change in NWC 24300 = 67310 - 42400 - NWC NWC = 67310 - 42400 - 24300 NWC = 610

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $2.5 million, and the 2018 balance sheet showed long-term debt of $2.65 million. The 2018 income statement showed an interest expense of $100,000. What was the firm's cash flow to creditors during 2018?

CFTC = Interest paid - Net New Borrowing = Interest Paid - (Long term debt 2018 - Long term debt 2017) = $100,000 - ($2.65 mn - $2.5 mn) = $100,000 - $150,000 = (50,000) Cash flow to Creditors = (50,000)

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed $610,000 in the common stock account and $2.5 million in the additional paid-in surplus account. The 2018 balance sheet showed $650,000 and $3 million in the same two accounts, respectively. If the company paid out $610,000 in cash dividends during 2018, what was the cash flow to stockholders for the year?

CFTSH = Div Paid - {(End Common stock +ending paid capital) - (Beg Common Stock+Beg Paid in Capital)} = 610,000-{650,000+3,000,000-610,000+2,500,000}

Use the following information for Taco Swell, Inc., (assume the tax rate is 21 percent): 2017 2018 Sales $ 17,049 $ 18,798 Depreciation 2,386 2,494 Cost of goods sold 5,740 6,741 Other expenses 1,350 1,183 Interest 1,115 1,330 Cash 8,681 9,277 Accounts receivable 11,498 13,512 Short-term notes payable 1,684 1,651 Long-term debt 29,090 35,254 Net fixed assets 72,792 77,640 Accounts payable 6,275 6,670 Inventory 20,441 21,872 Dividends 2,029 2,324 For 2018, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Cash Flow From Assets Cash Flow to Creditors Cashflow to Stockholders

Has to do with Cash **** OCF = EBIT + Depreciation - Taxes OCF = $8,380 + $2,494 - $1,480.50 OCF = $9,393.50 NWC, 2018 = CA, 2018 - CL 2018 NWC, 2018 = $44,661 - $8,321 NWC, 2018 = $36,340 NWC, 2017 = CA, 2017 - CL, 2017 NWC, 2017 = $40,620 - $7,959 NWC, 2017 = $32,661 Change in NWC = NWC, 2018 - NWC, 2017 Change in NWC = $36,340 - $32,661 Change in NWC = $3,679 Net Capital Spending = Net Fixed Assets, 2018 + Depreciation, 2018 - Net Fixed Assets, 2017 Net Capital Spending = $77,640 + $2,494 - $72,792 Net Capital Spending = $7,342 Cash Flow from Assets = OCF - Change in Net Working Capital - Net Capital Spending Cash Flow from Assets = $9,393.50 - $3,679 - $7,342 Cash Flow from Assets = -$1,627.50 Net New Long-term Debt = Long-term Debt, 2018 - Long-term Debt, 2017 Net New Long-term Debt = $35,254 - $29,090 Net New Long-term Debt = $6,164 Cash Flow to Creditors = Interest Expense - Net New Long-term Debt Cash Flow to Creditors = $1,330 - $6,164 Cash Flow to Creditors = -$4,834 Cash Flow to Stockholders = Cash Flow from Assets - Cash Flow to Creditors Cash Flow to Stockholders = -$1,627.50 - (-$4,834) Cash Flow to Stockholders = $3,206.50

Logano Driving School's 2017 balance sheet showed net fixed assets of $5.7 million, and the 2018 balance sheet showed net fixed assets of $6.3 million. The company's 2018 income statement showed a depreciation expense of $250,000. What was net capital spending for 2018? (Do not round intermediate calculations.

NCS= End Fixed- Begin Fixed +Depr 6,300,000-5,700,000+250,000=850,000

You are given the following information for Bowie Pizza Co.: Sales = $74,000; Costs = $32,700; Addition to retained earnings = $6,700; Dividends paid = $2,280; Interest expense = $5,400; Tax rate = 25 percent. Calculate the depreciation expense.

Net income = Dividends + Addition to retained earnings = $2,280 + 6700 NI= $8,980 OR NI-Div=RE Solving for EBT : EBT * Tax rate = Net income EBT = NI / (1 * Tax rate) = $8,980 / (1 - 0.25) .75 EBT= $11,973.33 EBIT = Interest +EBT = $5,400+11,973.33 = $17,373.33 therefore Sales- Cost -EBIT=Dep 74,000-32,700-17,373.33= 23,927

Pompeii, Inc., has sales of $52,000, costs of $23,800, depreciation expense of $2,450, and interest expense of $2,200. If the tax rate is 22 percent, what is the operating cash flow, or OCF?

Sales 52,000 Costs (23,800) Dep Exp (2,450) EBIT 25750 Int Exp (2,200) EBT 23,550 Tax (22%) 5,181 NI 18,369 EBIT+Dep- Tax=OCF 25750+2450-5181= 23019

Griffin's Goat Farm, Inc., has sales of $676,000, costs of $338,000, depreciation expense of $82,000, interest expense of $51,000, a tax rate of 24 percent, and paid out $42,000 in cash dividends. What is the addition to retained earnings?

Sales 676,000 Costs (338,000) Dep Exp (82,000) EBIT 256,000 Interest Expense (51,000) EBT 205,000 Tax (24%) (49,200) NI 155,800 Sales-Cost-Dep=EBIT 676,000-338,000-82,000=256,000 EBIT-Interest Expense= EBT 256,000-51,000=205,000 EBT*.24=49,200 EBT-49,200=155,800 RE= 155,800-Div (42,000)= 113,800

Griffin's Goat Farm, Inc., has sales of $680,000, costs of $342,000, depreciation expense of $86,000, interest expense of $53,000, and a tax rate of 23 percent. What is the net income for this firm?

Sales 680,000 Less:costs (342000) Less:depreciation expense (86000) Earnings before interest and taxes $252000 Less:interest expense (53000) Earnings before taxes $199000 Less:tax@23% (45770) Net income $153230. Sales- Cost-Dep =EBIT 680,000-342,000-86,000=252,000 EBIT-Interest Expense= EBT EBT*Tax EBT-TAX=NI (Question)

During 2018, Raines Umbrella Corp. had sales of $724,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $449,000, $96,500, and $142,000, respectively. In addition, the company had an interest expense of $71,200 and a tax rate of 24 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully tax deductible.) a. What is the company's net income/loss for 2018? (Do not round intermediate calculations. Enter your answer as a positive value.) b. What is the company's operating cash flow? (Do not round intermediate calculations.)

Sales- COGS-Other Exp-Dep=EBIT =36500 EBIT- Interest=EBT (34700) DO NOT Take TAX out

Wims, Inc., has current assets of $5,000, net fixed assets of $23,300, current liabilities of $4,450, and long-term debt of $11,000. a. What is the value of the shareholders' equity account for this firm?

Total Assets = Current Assets + Net fixed Assets = $5000 + $ 23300 = $28300 Total Liabilities = Current Liabilities + Long Term debt = $4450 + $11,000 = $15450 Shareholders' Equity = Total Assets - Total Liabilities = $(28300 - 15450) = $ 12850 Net Working Capital = Current Assets - Current liabilities = $ 5000 - $ 4450 = $ 550

Prepare a 2018 balance sheet for Rogers Corp. based on the following information: Cash = $132,000; Patents and copyrights = $630,000; Accounts payable = $212,500; Accounts receivable = $102,500; Tangible net fixed assets = $1,630,000; Inventory = $295,500; Notes payable = $185,000; Accumulated retained earnings = $1,268,000; Long-term debt = $850,000. (Be sure to list the accounts in order of their liquidity.

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