E120 Principles of Engineering Economics
Fall 2010
Problem Set #1 Solutions
1.
To find shareholders’ equity, we must construct a balance sheet as follows:
Balance Sheet
CA
$5,100
CL
$4,300
NFA
23,800
LTD
7,400
SE
??
TA
$28,900
$28,900
We know that total liabilities and shareholders’ equity (TL & SE) must equal total assets
of $28,900. We also know that TL & SE is equal to current liabilities plus long-term debt
plus shareholders’ equity, so shareholders’ equity is:
SE = $28,900 – 7,400 – 4,300 = $17,200
NWC = CA – CL = $5,100 – 4,300 = $800
2.
The income statement for the company is:
Income Statement
Sales
$586,000
Costs
247,000
Depreciation
43,000
EBIT
$296,000
Interest
32,000
EBT
$264,000
Taxes(35%)
92,400
Net income
$171,600
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 = $380,000 + 1,400,000 = $1,480,000
The market value of current assets and fixed assets is given, so: