Corporate_Finance_9th_edition_Solutions_Manual_FINAL0

Change in nwc nwcend nwcbeg caend clend cabeg clbeg

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Unformatted text preview: w LTD = $75,000 21. a. The income statement is: Income Statement Sales $15,300 Cost of good sold 10,900 Depreciation 2,100 EBIT $ 2,300 Interest 520 Taxable income $ 1,780 Taxes 712 Net income $1,068 b. OCF = EBIT + Depreciation – Taxes OCF = $2,300 + 2,100 – 712 OCF = $3,688 13 c. Change in NWC = NWCend – NWCbeg = (CAend – CLend) – (CAbeg – CLbeg) = ($3,950 – 1,950) – ($3,400 – 1,900) = $2,000 – 1,500 = $500 Net capital spending = NFAend – NFAbeg + Depreciation = $12,900 – 11,800 + 2,100 = $3,200 CFA = OCF – Change in NWC – Net capital spending = $3,688 – 500 – 3,200 = –$12 The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $12 in funds from its stockholders and creditors to make these investments. d. Cash flow to creditors = Interest – Net new LTD = $520 – 0 = $520 Cash flow to stockholders = Cash flow from assets – Cash flow to creditors = –$12 – 520 = –$532 We can also calculate the cash flow to stockholders as: Cash flow to stockholders = Dividends – Net new equity Solving for net new equity, we get: Net new equity = $500 – (–532) = $1,032 The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $500 in new net working capital and $3,200 in new fixed assets. The firm had to raise $12 from its stakeholders to support this new investment. It accomplished this by raising $1,032 in the form of new equity. After paying out $500 of this in the form of dividends to shareholders and $520 in the form of interest to creditors, $12 was left to meet the firm’s cash flow needs for investment. 22. a. Total assets 2009 Total liabilities 2009 Owners’ equity 2009 Total assets 2010 Total liabilities 2010 Owners’ equity 2010 = $780 + 3,480 = $4,260 = $318 + 1,800 = $2,118 = $4,260 – 2,118 = $2,142 = $846 + 4,080 = $4,926 = $348 + 2,064 = $2,412 = $4,926 – 2,412 = $2,514 14 b. NWC 2009 NWC 2010 Change in NWC = CA09 – CL09 = $780 – 318 = $462 = CA10 – CL10 = $846 – 348 = $498 = NWC10 – NWC09 = $498 – 462 = $36 c. We can calculate net capital spending as: Net capital spending = Net fixed assets 2010 – Net fixed assets 2009 + Depreciation Net capital spending = $4,080 – 3,480 + 960 Net capital spending = $1,560 So, the company had a net capital spending cash flow of $1,560. We also know that net capital spending is: Net capital spending = Fixed assets bought – Fixed assets sold $1,560 = $1,800 – Fixed assets sold Fixed assets sold = $1,800 – 1,560 = $240 To calculate the cash flow from assets, we must first calculate the operating cash flow. The operating cash flow is calculated as follows (you can also prepare a traditional income statement): EBIT = Sales – Costs – Depreciation EBIT = $10,320 – 4,980 – 960 EBIT = $4,380 EBT = EBIT – Interest EBT = $4,380 – 259 EBT = $4,121 Taxes = EBT × .35 Taxes = $4,121 × .35 Taxes = $1,442 OCF = EBIT + Depreciation – Taxes OCF = $4,380 + 960 – 1,442 OCF = $3,898 Cash flow from assets = OCF – Change in NWC – Net capital spending. Cash flow from assets = $3,898 – 36 – 1,560 Cash flow from assets = $2,302 d. Net new borrowing = LTD10 – LTD09 Net new borrowing = $2,064 – 1,800 Net new borrowing = $264 Cash flow to creditors = Interest – Net new LTD Cash flow to creditors = $259 – 264 Cash flow to creditors = –$5 Net new borrowing = $264 = Debt issued – Debt retired Debt retired = $360 – 264 = $96 15 23. Cash Accounts receivable Inventory Current assets Net fixed assets Total assets Balance sheet as of Dec. 31, 2009 $2,739 Accounts payable 3,626 Notes payable 6,447 Current liabilities $12,812 Long-term debt $22,970 Owners' equity $35,782 Total liab. & equity Balance sheet as of Dec. 31, 2010 $2,802 Accounts payable 4,085 Notes payable 6,625 Current liabilities $13,512 Long-term debt $23,518 Owners' equity $37,030 Total liab. & equity $2,877 529 $3,406 $9,173 $23,203 $35,782 Cash Accounts receivable Inventory Current assets Net fixed assets Total assets $2,790 497 $3,287 $10,702 $23,041 $37,030 2009 Income Statement Sales $5,223.00 COGS 1,797.00 Other expenses 426.00 Depreciation 750.00 EBIT $2,250.00 Interest 350.00 EBT $1,900.00 Taxes 646.00 Net income $1,254.00 Dividends Additions to RE $637.00 617.00 2010 Income Statement Sales $5,606.00 COGS 2,040.00 Other expenses 356.00 Depreciation 751.00 EBIT $2,459.00 Interest 402.00 EBT $2,057.00 Taxes 699.38 Net income $1,357.62 Dividends Additions to RE $701.00 656.62 24. OCF = EBIT + Depreciation – Taxes OCF = $2,459 + 751 – 699.38 OCF = $2,510.62 Change in NWC = NWCend – NWCbeg = (CA – CL) end – (CA – CL) beg Change in NWC = ($13,512 – 3,287) – ($12,812 – 3,406) Change in NWC = $819 Net capital spending = NFAend – NFAbeg + Depreciation Net capital spending = $23,518 – 22,970 + 751 Net capital spending = $1,299 16 Cash flow from assets = OCF – Change in NWC – Net capital spending Cash flow from assets = $2,510.62 – 819 – 1,299 Cash flow from assets = $396.62 Cash flow to...
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This note was uploaded on 07/10/2010 for the course FIN 6301 taught by Professor Eshmalwi during the Spring '10 term at University of Texas-Tyler.

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