5. To find the book value of current assets, we use: NWC = CA – CL.
Rearranging to solve for
current assets, we get:
CA = NWC + CL = $380,000 + 1,100,000 = $1,480,000
The market value of current assets and fixed assets is given, so:
Book value CA = $1,480,000 Market value CA = $1,600,000
Book value NFA = $3,700,000 Market value NFA = $4,900,000
Book value assets = $5,180,000 Market value assets = $6,500,000
12. Cash flow to stockholders = Dividends paid – Net new equity
Cash flow to stockholders = Dividends paid – [(Commonend + APISend) – (Commonbeg + APISbeg)]
Cash flow to stockholders = $490,000 – [($815,000 + 5,500,000) – ($740,000 + 5,200,000)]
Cash flow to stockholders = $115,000
Note, APIS is the additional paid-in surplus.
14. To find the OCF, we first calculate net income.
Income Statement
Sales $196,000
Costs 104,000
Other expenses 6,800
Depreciation 9,100
EBIT $76,100
Interest 14,800
Taxable income $61,300
Taxes 21,455
Net income $39,845
Dividends $10,400
Additions to RE $29,445
a. OCF = EBIT + Depreciation – Taxes = $76,100 + 9,100 – 21,455 = $63,745
b. CFC = Interest – Net new LTD = $14,800 – (–7,300) = $22,100
Note that the net new long-term debt is negative because the company repaid part of its long-
term debt.
c. CFS = Dividends – Net new equity = $10,400 – 5,700 = $4,700
d. We know that CFA = CFC + CFS, so:
CFA = $22,100 + 4,700 = $26,800
CFA is also equal to OCF – Net capital spending – Change in NWC. We already know OCF.
Net capital spending is equal to:
Net capital spending = Increase in NFA + Depreciation = $27,000 + 9,100 = $36,100
Now we can use:
CFA = OCF – Net capital spending – Change in NWC
$26,800 = $63,745 – 36,100 – Change in NWC
Solving for the change in NWC gives $845, meaning the company increased its NWC by
$845.
15. The solution to this question works the income statement backwards. Starting at the bottom:
Net income = Dividends + Addition to ret. earnings = $1,500 + 5,100 = $6,600
Now, looking at the income statement:
EBT – EBT × Tax rate = Net income
Recognize that EBT × Tax rate is simply the calculation for taxes. Solving this for EBT yields:
EBT = NI / (1– tax rate) = $6,600 / (1 – 0.35) = $10,154
Now you can calculate:
EBIT = EBT + Interest = $10,154 + 4,500 = $14,654
The last step is to use:
EBIT = Sales – Costs – Depreciation
$14,654 = $41,000 – 19,500 – Depreciation
Solving for depreciation, we find that depreciation = $6,846
16. The balance sheet for the company looks like this:
Balance Sheet
Cash $195,000 Accounts payable $405,000
Accounts receivable 137,000 Notes payable 160,000
Inventory 264,000 Current liabilities $565,000
Current assets $596,000 Long-term debt 1,195,300
Total liabilities $1,760,300
Tangible net fixed assets 2,800,000
Intangible net fixed assets 780,000 Common stock ??
Accumulated ret. earnings 1,934,000
Total assets $4,176,000 Total liab. & owners’ equity $4,176,000
Total liabilities and owners’ equity is:
TL & OE = CL + LTD + Common stock + Retained earnings
Solving for this equation for equity gives us:
Common stock = $4,176,000 – 1,934,000 – 1,760,300 = $481,700
19. Income Statement
Sales $730,000
COGS 580,000
A&S expenses 105,000
Depreciation 135,000
EBIT –$90,000
Interest 75,000
Taxable income –$165,000
Taxes (35%) 0
a. Net income –$165,000
b. OCF = EBIT + Depreciation – Taxes = –$90,000 + 135,000 – 0 = $45,000
c. Net income was negative because of the tax deductibility of depreciation and interest
expense. However, the actual cash flow from operations was positive because depreciation is
a non-cash expense and interest is a financing expense, not an operating expense.