Finance Chapter No 2

8/17/2019 Finance Chapter No 2

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EX1: A frm has current assets o $100, net f xedassets o $500, short-term debt o $70, and long-term debt o $200. What does the balance sheetlook lke! What s shareholders" e#ut! What s net

%orkng ca&tal!'(2)*he +lngon or&oraton has f xed assets %th a bookalue o $700 and an a&&rased market alue o about $1,000.et %orkng ca&tal s $/00 on the books, but a&&roxmatel$00 %ould be realed all the current accounts %erel#udated. +lngon has $500 n long-term debt, both book

alue and market alue. What s the book alue o the e#ut!What s the market alue!


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.1 3uldng a 3alance 4heet redator ucks, 6nc., has currentassets o $/,000, netfxed assets o $22,500, current labltes o $,/00, and long-term debt o $,800.

What s the alue o the shareholders" e#ut account or ths frm! 9o% much snet %orkng ca&tal!

.5) :arket ;alues and 3ook ;alues +lngon Wdgets, 6nc.,&urchased ne% cloakngmachner three ears ago or $7 mllon. *he machner can besold to the


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*he 6ncome 4tatement

=.4. > 2007 6ncome 4tatement?$ n mllons@

et sales $1,50Cost of goods sold 750Depreciation 65

'arnngs beore nterest and taxes $ /Interest paid 70*axable ncome $ 2/ Taxes 212et ncome $ /12

Dividends $10!ddition to retained earnings 0"


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alculatng 'arnngs and Bdends &er 4hare

EX1# 4u&&ose =.4. had 200 mllon shares outstandngat the end o 2007. 3ased on the ncome statement

n &reous slde,%hat %as '4! What %ere ddends&er share!

.2a. :ama


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Taxes

*axable 6ncome *ax


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alculatng *axes *he 3arla o. had $25,000 n 2007 taxablencome. =sngt+e rates fro- Ta,le in t+e c+apter calc*late t+e co-pans 2007inco-e taxes#

,# .+at is !verage Tax 3ate/ .+at is t+e 4arginal Tax rate/


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ash Clo%

Cas+ o fro- assets Cas+ o to creditors& Cas+ o tostoc+olders

Cas+ 8lo 8ro- !ssets:1# 9peration Cas+ 8lo

a&tal 4&endng

hange n et Workng a&tal


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ash Clo% to redtors

ash Clo% to 4tockholders


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>&eratng ash Clo% Burng the ear, Bole ola, 6nc.,had sales and cost o goods sold of $600 and $00respectivel# Depreciation as $150 and interest paid as$0# Taxes ere calc*lated at a straig+t ' percent# Dividends

ere $0# !ll ; g*res are in -illions of dollars#< .+at asoperating cas+ o for Dole/

hange n W and ash Clo%rom Assets 4u&&ose Bole olastarted the ear %th

$210 in c*rrent assets and $1620in c*rrent lia,ilities and t+ecorresponding ending;g*res ere $2260 and $1710#.+at as t+e c+ange in =.C d*ringt+e ear/ .+at as

cas+ o fro- assets/

et a&tal 4&endng 4u&&osebegnnng net f xed assets %ere$500 and endng net

;xed assets ere $750# .+at as t+enet capital spending for t+e ear/


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uestons1.alculatng >C rather, 6nc., has sales o$1/,200, costs o $5,00, de&recatonexpense of $1200 and interest expense of $6(0# If t+e

tax rate is 5 percent +at is t+e operating cas+ oor 9C8/

2.alculatng et a&tal 4&endng +ahneBrng 4chool"s 200 balance sheet s+oed net ;xed assets of $'#6 -illion and t+e 2007 ,alance s+eet

s+oed net ; xed assets of $5#2 -illion# T+eco-pans 2007 inco-e state-ent s+oed adepreciationexpense of $(75000# .+at as net capital spendingfor 2007/

.alculatng Addtons to W) *he 200 balancesheet o


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5. ash Clo% to 4tockholders*he 200 balance sheet o :ara"s *enns 4ho&, 6nc.,s+oed $(60000 in t+e co--on stoc acco*nt and $6#"-illion in t+e additional paid&in s*rpl*s acco*nt# T+e 2007,alance s+eet s+oed $((5000 and $7#7 -illionin t+e sa-e to acco*nts respectivel# If t+e co-pan paido*t $600000 in cas+ dividends d*ring 2007 +at as t+ecas+ o to stoc+olders for t+e ear/

alculatng *otal ash Clo%s Een the

normaton or :ara"s *enns 4ho&,Inc# in >ro,le-s 5 and 6 s*ppose o* also no t+att+e ; r-s net capitalspending for 2007 as $760000 and t+at t+e ; r-red*ced its net oringcapital invest-ent , $165000# .+at as t+e ; r-s

2007 operating cas+ oor 9C8/


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alculatng ash Clo%s 3re%er6ndustres had the ollo%ngo&eratng results

for 2007: sales $15200? cost ofgoods sold $11'00? depreciationexpense$2700? interest expense $520?dividends paid $600# !t t+e,eginning of

t+e ear net ; xed assets ere$"100 c*rrent assets ere $200and c*rrentlia ,ilities ere $1(00# !t t+e end oft+e ear net ; xed assets ere$"700 c*rrent

assets ere $(50 and c*rrentlia,ilities ere $2100# T+e tax ratefor 2007 as' percent#a. What s net ncome or 2007!b. What s the o&eratng cash Fo% or 2007!


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Assgnment.1)alculatng *otal ash Clo%s 3edrock Erael or&. sho%s

the ollo%ng normatonon its 2007 inco-e state-ent: sales $162000? costs $"000? ot+erexpenses $5100? depreciation expense $('00? interest expense$16500?taxes $1'(20? dividends $"'00# In addition o*re told t+at t+e ;r- iss*ed

$750 in ne e@*it d*ring 2007 and redee-ed $6'00 ino*tstanding long&ter-de,t#a. What s the 2007 o&eratng cash F o%!b. What s the 2007 cash F o% to credtors!c. What s the 2007 cash F o% to stockholders!

d. 6 net f xed assets ncreased b $12,000 durng the ear,%hat %as the addton to=.C/

.2. =sng 6ncome 4tatements) Een the ollo%ngnormaton or :ama :a a Co# calc*late t+e depreciation expense: sales$'000? costs $16000? addition to retained earnings $'00?dividends paid $1200? interest expense $200? tax rate 5percent


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.re&arng a 3alance 4heet re&are a 2007 balance sheet or9alt%anger or&.,ased on t+e folloing infor-ation: cas+ $210000? patents and

coprig+ts$720000? acco*nts paa,le $'0000? acco*nts receiva,le $1'"000?tangi,lenet ; xed assets $2"00000? inventor $265000? notes paa,le$1(0000?acc*-*lated retained earnings $1(65000? long&ter- de,t

$1'0000#

./):argnal ersus Aerage *ax


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alculatng ash Clo%s onsder the ollo%ngabbreated fnancal statements for >arrot+eadEnterprises:

a. What s o%ners" e#ut or 200 and 2007!b. What s the change n net %orkng ca&tal or 2007!c. 6n 2007, arrothead 'nter&rses &urchased $1,500 n ne% fxed assets. 9o%-*c+ in ;xed assets did >arrot+ead Enterprises sell/ .+at is t+e cas+ o fro-

assets for t+e ear/ T+e tax rate is 5 percent#

Finance Chapter No 2

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