Homework 2

The Embroidery Shoppe had beginning retained earnings of $18,670. During the year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200, dividends of $950, and interest paid of $478. The tax rate is 34 percent. What is the retained earnings balance at the end of the year?

$21,947.30 NI = (83,490 - 68,407 - 8,200 - 478) * (1-0.34) = $4,227.30 Ending RE = $18,670 + 4,227.30 - 950 = $21,947.30

Wes Motors has total assets of $98,300, NWC of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets?

$29,400 CL = $98,300 - 38,600 - 41,600 = $18,100 CA = $11,300 + 18,100 = $29,400

Net working capital increases when

inventory is sold at a profit (2.1)

The market value

of an asset tends to provide a better guide to the actual worth of that asset than does the book value (2.1)

A firm's liquidity level decreases when

inventory is purchased with cash (2.1)

Andre's Dog House had CA of $67,200 and CL of $71,100 last year. This year the CA are $82,600 and CL are $85,100. The depr. exp. for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

$1,400 Change in NWC = (82,600-85,100)-(67,200-71,100)= $1,400

The Plaza Cafe has an OCF of $83,770, depr. exp of $43,514, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: CA: BB = 138,590 & EB = 129,204 NFA: BB = 599,608 & EB = 597,913 CL: BB = 143,215 & EB = 139,827 Long-Term Debt: BB= 408,660 & EB = 402,120 What is the amount of the cash flow from Assets?

$47,949 CFFA = $83,770 - ($597,913-599,608 + 43,514) - [($129,204-139,827) - ($138,590-143,215)] = $47,949

Use the following tax table to answer this question: Taxable Income Tax Rate 0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% 335,001 - 10,000,000 34% Comfy Inn earned $218,310 in taxable income for the year. How much tax does the company owe?

$68,390.90 Total Tax: 0.15(50,000) + 0.25(25,000) + 0.34(25,000) + 0.39(218,310-100,000) Total Tax = 68,390.90

The balance sheet of a firm shows beginning NFA of $348,200 and ending NFA of $371,920. The depr. exp. for the year is $46,080 and the interest exp. is $11,460. What is the amount of the net capital spending?

$69,800 Net capital spending = $371,920-348,200+46,080 = $69,800

The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depr. exp. is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34%?

$93,560 EBIT = $821,300-698,500-28,400 = $94,400 Tax = ($94,400-8,400)*0.34= $29,240 OCF = $94,400+28,400-29,240 = $93,560

Dockside Warehouse has NWC of $42,400, total assets of $519,300, and Net fixed assets of $380,200. What is the value of the current liabilities?

$96,700 CL = $519,300 - 380,200 - 42,400 = $96,700

Red's Tractors owes $52,311 in taxes on a taxable income of $608,606. The company has determined that it will owe $56,211 in tax if its taxable income rises to $620,424. What is the marginal tax rate at this level of income?

33% Marginal Tax Rate: (56,211 - 52,311) / (620,424 - 608,606) = 0.33

An increase in what will increase operating cash flow for a profitable, tax-paying firm?

Depreciation (2.4)

What is included in the market value of a firm but not in the book value?

Reputation of the firm (2.1)