Chapter 2 Financial Statements, taxes and cash flow
Class problems
1.
Building a Balance Sheet KCCO, Inc., has current assets of $5,300, net fixed assets of $24,900,
current liabilities of $4,600, and long-term debt of $10,300. What is the value of the shareholders’
equity account for this firm? How much is net working capital?
2.
Building an Income Statement Billy’s Exterminators, Inc., has sales of $817,000, costs of
$343,000, depreciation expense of $51,000, interest expense of $38,000, and a tax rate of 35
percent. What is the net income for this firm? Suppose the firm paid out $95,000 in cash
dividends. What is the addition to retained earnings? Suppose the firm had 90,000 shares of
common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends
per share figure?
3.
Calculating Total Cash Flows Volbeat Corp. shows the following information on its 2015 income
statement: sales = $267,000; costs = $148,000; other expenses = $8,200; depreciation expense =
$17,600; interest expense = $12,400; taxes = $32,620; dividends = $15,500. In addition, you’re
told that the firm issued $6,400 in new equity during 2015 and redeemed $4,900 in outstanding
long-term debt.
a. What is the 2015 operating cash flow?
b. What is the 2015 cash flow to creditors?
c. What is the 2015 cash flow to stockholders?
d. If net fixed assets increased by $25,000 during the year, what was the addition to NWC?
4.
Using Income Statements Given the following information for Gandolfino Pizza Co., calculate
the depreciation expense: sales = $61,000; costs = $29,600; addition to retained earnings = $5,600;
dividends paid = $1,950; interest expense = $4,300; tax rate = 35 percent.
5.
Residual Claims Red Hawk Inc., is obligated to pay its creditors $6,800 during the year.
a. What is the market value of the shareholders’ equity if assets have a market value of $8,700?
b. What if assets equal $5,900?
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6.
Net Income and OCF During 2014, Raines Umbrella Corp. had sales of $675,000. Cost of goods
sold, administrative and selling expenses, and depreciation expenses were $435,000, $85,000, and
$125,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate
of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)
a. What is Raines’s net income for 2014?
b. What is its operating cash flow?
c. Explain your results in (a) and (b).
7.
Accounting Values versus Cash Flows In the previous Problem, suppose Raines Umbrella Corp.
paid out $102,000 in cash dividends. Is this possible? If net capital spending and net working
capital were both zero, and if no new stock was issued during the year, what do you know about
the firm’s long-term debt account?