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Practice Problems for Chapter 2
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 = $410,000 + 1,300,000 = $1,710,000
The market value of current assets and fixed assets is given, so:
Book value CA
= $1,710,000
Market value CA
= $1,800,000
Book value NFA
= $2,600,000
Market value NFA
= $3,700,000
Book value assets = $4,310,000
Market value assets
= $5,500,000
6.
Taxes = 0.15($50K) + 0.25($25K) + 0.34($25K) + 0.39($325 – 100K) = $110,000
7.
The average tax rate is the total tax paid divided by net income, so:
Average tax rate = $110,000 / $325,000 = 33.85%
The marginal tax rate is the tax rate on the next $1 of earnings, so the marginal tax rate = 39%.
9.
Net capital spending = NFA
end
– NFA
beg
+ Depreciation = $5.2M – 4.6M + 875K = $1.475M
15.
The solution to this question works the income statement backwards. Starting at the bottom:
Net income = Dividends + Addition to ret. earnings = $1,200 + 4,300 = $5,500
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 Fall '08
 Selvili
 Fixed Assets

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