Ffmgi Chapter 1 - Homework. PDF

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David Andrei Avram

Homework

1st of October

13. Calculating Total Cash Flows [LO4] Given the information for Maria’s Tennis Shop, Inc., in Problems 11 and 12, suppose you also know that the firm’s net capital spending for 2009 was $940,000, and that the firm reduced its net working capital investment by $85,000. What was the firm’s 2009 operating cash flow, or OCF? Cash flow from ASSETS = Cash flow to creditors + Cash flow to stockholders = –$130,000 + 115,000 = –$15,0007 Cash flow ASSETS = –$15,000 = OCF – Change in NATIONAL WORKING CAPITAL – Net capital spending = –$15,000 = OCF – (–$85,000) – 940,000 OFC = –$15,000 – 85,000 + 940,000 OFC = $840,000 14. Calculating Total Cash Flows [LO4] Jetson Spacecraft Corp. shows the following information on its 2009 income statement: sales � $196,000; costs � $104,000; other expenses � $6,800; depreciation expense � $9,100; interest expense � $14,800; taxes � $21,455; dividends � $10,400. In addition, you’re told that the firm issued $5,700 in new equity during 2009 and redeemed $7,300 in outstanding long-term debt. • W hat is the 2009 operating cash flow? •

W hat is the 2009 cash flow to creditors?

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W hat is the 2009 cash flow to stockholders?

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I f net fixed assets increased by $27,000 during the year, what was the addition to NWC?

Sales - $196,000 Costs - 104,000 Other expenses - 6,800 Depreciation - 9,100 EBIT - $76,100 Interest - 14,800 Dividends - $10,400 Taxable income - $61,300 Taxes - 21,455 NET INCOME- $39,845 a. OCF = EBIT + Depreciation – Taxes = $76,100 + 9,100 – 21,455 = $63,745

David Andrei Avram

Homework

1st of October

b. CFC = Interest – Net new LTD = $14,800 – (–7,300) = $22,100 c. CFS = Dividends – Net new equity = $10,400 – 5,700 = $4,700 d. CFA = CFC + CFS CFA = $22,100 + 4,700 = $26,800 Net capital spending = Increase in NFA + Depreciation = $27,000 + 9,100 = $36,100 CFA = OCF – Net capital spending – Change in NWC $26,800 = $63,745 – 36,100 – Change in NWC Changes in NWC = $845 18. Marginal versus Average Tax Rates [LO3] (Refer to Table 2.3.) Corporation Growth has $88,000 in taxable income, and Corporation Income has $8,800,000 in taxable income. • hat is the tax bill for each firm? •

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S uppose both firms have identified a new project that will increase taxable income by $10,000. How much in additional taxes will each firm pay? Why is this amount the same?

a. Taxes Growth = 0.15($50,000) + 0.25($25,000) + 0.34($13,000) = $18,170 Taxes Income = 0.15($50,000) + 0.25($25,000) + 0.34($25,000) + 0.39($235,000) + 0.34($8,465,000) = $2,992,000 b. Both firms will pay an additional 3,400$ in taxes, because they both have a 34% tax rate.

19. Net Income and OCF [LO2] During 2009, Raines Umbrella Corp. had sales of $730,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $580,000, $105,000, and $135,000, respectively. In addition, the company had an interest expense of $75,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) a. What is Raines’s net income for 2009? b. What is its operating cash flow? c. Explain your results in (a) and (b).

Income Statement Sales $730,000 COGS 580,000

David Andrei Avram

Homework

1st of October

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 21. Calculating Cash Flows [LO2] Dahlia Industries had the following operating results for 2009: sales � $22,800; cost of goods sold � $16,050; depreciation expense � $4,050; interest expense � $1,830; dividends paid � $1,300. At the beginning of the year, net fixed assets were $13,650, current assets were $4,800, and current liabilities were $2,700. At the end of the year, net fixed assets were $16,800, current assets were $5,930, and current liabilities were $3,150. The tax rate for 2009 was 34 percent. • W hat is net income for 2009? •

W hat is the operating cash flow for 2009?

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W hat is the cash flow from assets for 2009? Is this possible? Explain.

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I f no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to stockholders? Explain and interpret the positive and negative signs of your answers in ( a) through (d).

a. Income Statement Sales = $22,800 Cost of goods sold = 16,050 Depreciation = 4,050 EBIT = $2,700 Interest = $1,830 Taxable income = $870 Taxes (34%) = $296 Net income = $574

David Andrei Avram

Homework

b. OCF = EBIT + Depreciation – Taxes = $2,700 + 4,050 – 296 = $6,454\

1st of October...