Business Finance chapter 2 homework

What is the difference between accounting income and cash flow? Which do we need to use when making decisions?

Accounting income is purely revenue - expenses= income. Cash flow is when cash is actually changing hands, either coming in or leaving. We need to use Cash Flow since it is more current.

What is the difference between average and marginal tax rates? Which should we use when making financial decisions?

Average tax rate are tax bills/ taxable income. Marginal tax rates are the percentage paid on the next dollar earned. Marginal tax rates are used for financial decisions.

What is the difference between average and marginal tax rates? Which should we use when making financial decisions?

Average tax rates are the tax bills/taxable income. Marginal tax rates are the percentage paid on the next dollar earned. Marginal tax rates are used for financial decisions. Marginal tax rates are used for financial decisions.

What is the difference between book value and market value? Which should we use for decision making purposes?

Book value is the amount you paid for an asset, minus depreciation. Whereas, market value is what an asset would sell for in the current market. Market value is usually more important because it is more up-to-date.

What is the difference between book value and market value? Which should we use for decision making purposes?

Book value is the amount you paid for an asset, minus depreciation. Whereas, market value is what an asset would sell for in the current market. Market value is usually more important because it is up-to-date.

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4.7 million. The machinery can be sold to the Romulans today for $6.9 million. Klingon's current balance sheet shows net fixed assets of $3.5 million, current liabilities of $780,000, and net working capital of $137,000. If all the current accounts were liquidated today, the company would receive $895,000 cash. What is the book value of Klingon's total assets today? What is the sum of the market value of NWC and the market value of fixed assets?

Book value of total assets : 4,417,000 current assets = current liabilities + NWC 780,000 + 137,000 = 917,000 Book value of total assets = book value of fixed assets + current assets 3,500,000 + 917,000 = 4,417,000 Sum of Market value of NWC + Market value of fixed assets : 7,795,000 6,900,000 + 895,000 = 7,795,000

How do we determine a firm's cash flow? What are the equations and where do we find the information?

Cash flow comes from operating, investing, and financing activities. The SUM of these three flows will determine the Statement of Cash Flows.

How do we determine a firm's cash flows? What are the equations and where do we find the information?

Cash flow comes from operating, investing, and financing activities. The sum of these three flows will determine the Statement of Cash Flows.

Sidewinder, Inc. has sales of $638,000, costs of $329,000, depreciation expense of $74,000, interest expense of $39,000, and a tax rate of 21%. The firm paid out $69,000 in cash dividends. What is the addition to retained earnings? (round to the nearest whole number)

Sales | 638,000 Less : Costs | 329,000 Depreciation | 74,000 EBIT | (638,000 - 329,000 - 74,000) = 235,000 Less : Interest | 39,000 EBT | 196,000 Less : tax (196,000 x 21%) | 41,160 Net income |(196,000 - 41,160) = 154,840 Dividend | 69,000 Earnings | 85,840 Answer: Addition to Retained Earnings = $85,840

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%. What is the net income for this firm?

Sales | 686,000 Less : Costs | 341,000 Less : Depreciation expense | 86,000 Earnings before interest and taxes | 259,000 Less : Interest taxes | 51,000 Earnings before taxes | 208,000 Less : Taxes (208,000*23%) | 47,840 NET INCOME | $160,160

You are given the following info. for Ted's Dread Co. : sales = $78,400; costs = $56,100; addition to retained earnings = $6,700; dividends paid = $3,080; Interest expense = $2,790; tax rate = 21% Calculate the depreciation expense for the company. (round your answer to the nearest whole number)

Sales | 78,400 Less : Costs | 56,100 Less : depreciation expense (78,400 - 56,100 - 15,169.75) = $7,130

Grey Wolf, Inc. has current assets of $2,350, net fixed-assets of $11,100, current liabilities of $1,440, and long-term debt of $4,160. What is the value of the shareholders' equity account for this firm? (round to the nearest whole number) How much is the company's net working capital?

Shareholders' equity = Current assets + Net fixed assets - Current liabilities - Long-term debt = $2,350 + $11,100 - $1,440 - $4,160 = $7,850 Net working Capital = Current assets - Current liabilities = $2,350 - $1,440 = $910

Duela Dent is single and had $189,600 in taxable income. (Use the rates from Table 2.3) (Table 2.3) __________________________________________________________________________________________________ Taxable Income Tax Rate $ 0-- 9,525 10% 9525-- 38,700 12 38,700-- 82,500 22 82,500-- 157,500 24 157,500-- 200,000 32 200,000-- 500,000 35 500,000+ 37 Calculate the taxable income. What is the average tax rate? What is the marginal tax rate?

Taxable income = $189,600 Tax = (9,525 x 10%) + (29,175 x 12%) + (43,800 x 22%) + (75,000 x 24%) + (32,100 x 32%) = $42,361.50 Average tax rate = Tax tax / Total income = 42,361.50 / 189,600 = 22,34% Marginal tax rate is the tax rate applicable on one dollar of additional income i.e. 32%

Sidewinder, Inc. has sales of $638,000, costs of $329,000, depreciation expense of $74,000, interest expense of $39,000, and a tax rate of 21%. The firm paid out $69,000 in cash dividends and has 35,200 shares of common stock outstanding. What is the Earnings per share, or EPS figure? (round your answer to two decimal places) What is the Dividends per share figure? (round your answer to two decimal places)

EPS = net income / number of shares EPS = 154,840 / 35,200 = 4.40 Dividend per share = Dividend paid / number of shares = 69,000 / 35,200 = 1.96

Duela Dent is single and had $185,600 in taxable income. (Use the rates from Table 2.3) (Table 2.3) __________________________________________________________________________________________________ Taxable Income Tax Rate $ 0-- 9,525 10% 9525-- 38,700 12 38,700-- 82,500 22 82,500-- 157,500 24 157,500-- 200,000 32 200,000-- 500,000 35 500,000+ 37 Calculate her income taxes.

Income level Tax Rate Income tax calculation 9,525 10% 9,525 * 0.10 = 952.50 29,175 12% 29,175 * 0.12 = 3,501 43,800 22% 43,800 * 0.22 = 9,636 75,000 24% 75,000 * 0.24 = 18,000 28,100 32% 28,100 * 0.32 = 8,992 185,600 = 41,081.50 Hence, the income tax is $41,081.50

Rottweiler Obedience School's December 31, 2018 balance sheet showed net fixed assets of $1,820,000, and the December 31, 2019, balance sheet showed net fixed assets of $2,230,000. The company's 2019 income statement showed a depreciation expense of $340,000. What was the company's net capital spending for 2019? (round to the nearest whole number)

Net capital spending (NCS) | Increase in NFA + Depreciation NET CAPITAL SPENDING (NCS) | $750,000 = (2230000 - 1820000) + 340000

Benson, Inc., has sales of $41,680, costs of $13,560, depreciation expense of $2,910, and interest expense of $2,120. The tax rate is 24%. What is the operating cash flow, or OCF? (round to the nearest whole number)

Sales | $41,680 Less : Costs | $13,560 Less : Depreciation | $2,910 _______________________________________________________________________________ EBIT | $25,210 Less : Interest | $2,120 Less : Tax | $5,541.60 NET INCOME | $17,548.40 _______________________________________________________________________________ OPERATING CASH FLOW = EBIT + Depreciation - Taxes = $22,578 (25,210 + 2,910 - 5,541.6)