03_chap3

# 03_chap3 - 3-7 a.From the statement of cash flows the...

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Unformatted text preview: 3-7 a.From the statement of cash flows the change in cash must equal cash flow from operating activities plus long-term investing activities plus financing activities. First, we must identify the change in cash as follows:Cash at the end of the year\$25,000– Cash at the beginning of the year– 55,000Change in cash-\$30,000The sum of cash flows generated from operations, investment, and financing must equal a negative \$30,000. Therefore, we can calculate the cash flow from operations as follows:CF from operations + CF from investing + CF from financing = ∆ in cashCF from operations - \$250,000 + \$170,000 = -\$30,000CF from operations = \$50,000.b.To determine the firm’s net income for the current year, you must realize that cash flow from operations is determined by adding sources of cash (such as depreciation and amortization and increases in accrued liabilities) and subtracting uses of cash (such as increases in accounts receivable and inventories) from net income. Since we determined that the firm’s cash flow from operations totaled \$50,000 in part a of this problem, we can now calculate the firm’s net income as follows:NI + + - = NI + \$10,000 + \$25,000 – \$100,000= \$50,000 NI – \$65,000= \$50,000 NI= \$115,000.3-8EBIT = \$750,000; DEP = \$200,000; AMORT = 0; 100% Equity; T = 40%; NI = ?; NCF = ?; OCF = ?First, determine net income by setting up an income statement:EBIT\$750,000Interest 0EBT\$750,000Taxes (40%) 300,000NI\$450,000NCF = NI + DEP and AMORT = \$450,000 + \$200,000 = \$650,000.OCF = EBIT(1 – T) + DEP and AMORT = \$750,000(0.6) + \$200,000 = \$650,000.Chapter 3: Financial Statements, Cash Flow, and TaxesAnswers and Solutions1Note that NCF = OCF because the firm is 100% equity financed.3-9 MVA= (P × Number of common shares) - BV of equity\$130,000,000 = \$60X - \$500,000,000\$630,000,000 = \$60X X= 10,500,000 common shares.2Answers and SolutionsChapter 3: Financial Statements, Cash Flow, and Taxes3-10a.NOPAT = EBIT(1 – T)= \$4,000,000,000(0.6)= \$2,400,000,000....
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03_chap3 - 3-7 a.From the statement of cash flows the...

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