1. ch4 - distribute-network-for-lap Introduction to Management Science 12th by Taylor PDF

Preview

Summary

Introduction to Management Science 12th by TaylorIntroduction to Management Science 12th by TaylorIntroduction to Management Science 12th by TaylorIntroduction to Management Science 12th by Taylor...

Description

Practice Ch4

Dr. Hesham Merdad

1. Wu Systems has the following balance sheet. How much net operating working capital does the firm have? Cash $ 100 Accounts payable $ 200 Accounts receivable 650 Accruals 75 Inventory 550 Notes payable 625 Current assets $ 1,300 Current liabilities $ 900 Net fixed assets $ 1,000 Long-term debt 600 Common equity 300 Retained earnings 500 Total assets $ 2,300 Total liab. & equity $ 2,300 NOWC = $1,025

2. Shrives Publishing recently reported $14,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow? Free cash flow = $4,900

3. C. F. Lee Inc. has the following income statement. How much after-tax operating income does the firm have? Sales $2,600.00 Costs 1,850.00 Depreciation 192.00 EBIT $558.00 Interest expense 285.00 EBT $273.00 Taxes (35%) 95.55 Net income $177.45 $362.70

Page 1 of 4

Practice Ch4 Dr. Hesham Merdad 4. Last year, Stewart-Stern Inc. reported $11,250 of sales, $4,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. During last year, the firm had expenditures on fixed assets and net operating working capital that totaled $2,000. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1,350. By how much will the depreciation change cause (1) the firm's net income and (2) its free cash flow to change? Note that the company uses the same depreciation for tax and stockholder reporting purposes. Reduction in net income -$877.50 Increase in free cash flow $472.50

Diff NI

(878)

Diff CF

473

Page 2 of 4

Practice Ch4 Dr. Hesham Merdad 5. Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and $100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $5,000. Given the following data, prepare and interpret a cash budget for the months of May, June, and July. (1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale. (2) The firm receives other income of $2,000 per month. (3) The firm’s actual or expected purchases, all made for cash, are $50,000, $70,000, and $80,000 for the months of May through July, respectively. (4) Rent is $3,000 per month. (5) Wages and salaries are 10% of the previous month’s sales. (6) Cash dividends of $3,000 will be paid in June. (7) Payment of principal and interest of $4,000 is due in June. (8) A cash purchase of equipment costing $6,000 is scheduled in July. (9) Taxes of $6,000 are due in June.

6. Page 3 of 4

Practice Ch4

Dr. Hesham Merdad

Page 4 of 4...