Corporate_Finance_9th_edition_Solutions_Manual_FINAL0

To find the book value of current assets we use nwc ca

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Unformatted text preview: – 50,000 Addition to retained earnings = $98,850 3. To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $800,000 + 2,100,000 = $2,900,000 The market value of current assets and net fixed assets is given, so: Book value CA = $2,900,000 Book value NFA = $5,000,000 Book value assets = $7,900,000 4. Market value CA = $2,800,000 Market value NFA = $6,300,000 Market value assets = $9,100,000 Taxes = 0.15($50K) + 0.25($25K) + 0.34($25K) + 0.39($246K – 100K) Taxes = $79,190 The average tax rate is the total tax paid divided by net income, so: Average tax rate = $79,190 / $246,000 Average tax rate = 32.19% The marginal tax rate is the tax rate on the next $1 of earnings, so the marginal tax rate = 39%. 5. To calculate OCF, we first need the income statement: Income Statement Sales Costs Depreciation EBIT Interest Taxable income Taxes Net income $14,900 5,800 1,300 $7,800 780 $7,020 2,808 $4,212 OCF = EBIT + Depreciation – Taxes OCF = $7,800 + 1,300 – 2,808 OCF = $6,292 6. Net capital spending = NFAend – NFAbeg + Depreciation Net capital spending = $1,730,000 – 1,650,000 + 284,000 Net capital spending = $364,000 6 7. The long-term debt account will increase by $10 million, the amount of the new long-term debt issue. Since the company sold 10 million new shares of stock with a $1 par value, the common stock account will increase by $10 million. The capital surplus account will increase by $33 million, the value of the new stock sold above its par value. Since the company had a net income of $9 million, and paid $2 million in dividends, the addition to retained earnings was $7 million, which will increase the accumulated retained earnings account. So, the new long-term debt and stockholders’ equity portion of the balance sheet will be: Long-term debt Total long-term debt Shareholders equity Preferred stock Common stock ($1 par value) Accumulated retained earnings Capital surplus Total equity Total Liabilities & Equity $ 82,000,000 $ 82,000,000 $ 9,000,000 30,000,000 104,000,000 76,000,000 $ 219,000,000 $ 301,000,000 8. Cash flow to creditors = Interest paid – Net new borrowing Cash flow to creditors = $118,000 – (LTDend – LTDbeg) Cash flow to creditors = $118,000 – ($1,390,000 – 1,340,000) Cash flow to creditors = $118,000 – 50,000 Cash flow to creditors = $68,000 Cash flow to stockholders = Dividends paid – Net new equity Cash flow to stockholders = $385,000 – [(Commonend + APISend) – (Commonbeg + APISbeg)] Cash flow to stockholders = $385,000 – [($450,000 + 3,050,000) – ($430,000 + 2,600,000)] Cash flow to stockholders = $385,000 – ($3,500,000 – 3,030,000) Cash flow to stockholders = –$85,000 Note, APIS is the additional paid-in surplus. 9. 10. Cash flow from assets = Cash flow to creditors + Cash flow to stockholders = $68,000 – 85,000 = –$17,000 = –$17,000 = OCF – Change in NWC – Net capital spending = OCF – (–$69,000) – 875,000 = –$17,000 – 69,000 + 875,000 = $789,000 Cash flow from assets –$17,000 Operating cash flow Operating cash flow 7 Intermediate 11. a. The accounting statement of cash flows explains the change in cash during the year. The accounting statement of cash flows will be: Statement of cash flows Operations Net income Depreciation Changes in other current assets Accounts payable Total cash flow from operations Investing activities Acquisition of fixed assets Total cash flow from investing activities Financing activities Proceeds of long-term debt Dividends Total cash flow from financing activities Change in cash (on balance sheet) b. $105 90 (55) (10) $170 $(140) $(140) $30 (45) ($15) $15 Change in NWC = NWCend – NWCbeg = (CAend – CLend) – (CAbeg – CLbeg) = [($50 + 155) – 85] – [($35 + 140) – 95) = $120 – 80 = $40 c. To find the cash flow generated by the firm’s assets, we need the operating cash flow, and the capital spending. So, calculating each of these, we find: Operating cash flow Net income Depreciation Operating cash flow $105 90 $195 Note that we can calculate OCF in this manner since there are no taxes. 8 Capital spending Ending fixed assets Beginning fixed assets Depreciation Capital spending $340 (290) 90 $140 Now we can calculate the cash flow generated by the firm’s assets, which is: Cash flow from assets Operating cash flow Capital spending Change in NWC Cash flow from assets $195 (140) (40) $ 15 12. With the information provided, the cash flows from the firm are the capital spending and the change in net working capital, so: Cash flows from the firm Capital spending Additions to NWC Cash flows from the firm $(15,000) (1,500) $(16,500) And the cash flows to the investors of the firm are: Cash flows to investors of the firm Sale of long-term debt Sale of common stock Dividends paid Cash flows to investors of the firm (19,000) (3,000) 19,500 $(2,500) 9 13. a. The interest expense for the company is the amount of debt times the interest rate on the debt. So, the income statement for the company is: Income Statement Sales Cost of goods sold Selli...
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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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