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Financial Management Problems and Solutions

The document contains 4 problems related to financial management. Problem 1 provides balance sheet information for D&A Inc. and asks to calculate various financial metrics like total liabilities and equity, current assets, current liabilities, net working capital, and net operating working capital. Problem 2 gives EBITDA and net income information for Montenegro Brothers and asks to calculate depreciation and amortization. Problem 3 gives common dividend payout and retained earnings information for Steelwool Inc. and asks to calculate net income. Problem 4 gives cash flow statement information for AMG Cycling and asks to calculate cash flow from operating activities and net income.

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117 views1 page

Financial Management Problems and Solutions

The document contains 4 problems related to financial management. Problem 1 provides balance sheet information for D&A Inc. and asks to calculate various financial metrics like total liabilities and equity, current assets, current liabilities, net working capital, and net operating working capital. Problem 2 gives EBITDA and net income information for Montenegro Brothers and asks to calculate depreciation and amortization. Problem 3 gives common dividend payout and retained earnings information for Steelwool Inc. and asks to calculate net income. Problem 4 gives cash flow statement information for AMG Cycling and asks to calculate cash flow from operating activities and net income.

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jr centeno
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIVERSITY OF SOUTHERN MINDANAO

Kabacan, Cotabato
Philippines
FINANCIAL MANAGEMENT
Problem No. 3-1
The assets of D&A, Inc consists entirely of current assets and net plant and equipment. The firm
has a total assets of $2.5 million, and net plant and equipment is $2 million. It has notes payable of
$150,000, long-term debt of $750,000, and a total common equity of $1.5 million. The firm does
not have accounts payable and accruals on its balance sheet. The firm only finances with debt and
common equity, so it has no preferred stock on its balance sheet.

Requirement:

a. What is the amount of total liabilities and equity that appears on the firm’s balance
sheet?
b. What is the balance of current assets on the firm’s balance sheet?
c. What is the balance of current liabilities on the firm’s balance sheet?
d. What is the amount of accounts payable and accruals on its balance sheet [Consider
this as a single line item on the firm’s balance sheet.]
e. What is the firm’s net working capital?
f. What is the firm’s net operating working capital?
g. What is the explanation of for the difference in your answers to parts e and f?

Problem No. 3-2


Montenegro Brothers recently reported an EBITDA of $7.5 million and net income of $1.8 million. It
had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for
depreciation and amortization?

Problem No. 3-3


Steelwool Inc. paid out $22.5 million in total common dividends and reported $278.9 million of
retained earnings at year-end. The prior year’s retained earnings were $212.3 million. What was the
net income? Assume that all dividends declared were actually paid.

Problem No. 3-4


AMG Cycling had$55,000 in cash at year-end 2011 and $25,000 in cash at year-end 2012. The firm
invested in property, plant, and equipment totaling $250,000. Cash flow from financing activities
totaled +$170,000.
a. What was the cash flow from operating activities?
b. If accruals increased by $25,000, receivables and inventories increased by $100,000,
and depreciation and amortization totaled $10,000, what was the firm’s net income?

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