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Unformatted text preview: MGMT 310, lecture 2 problems #2.11 The 2008 balance sheet of Maria’s Tennis Shop, Inc., showed long‐term debt of $2.6 million, and the 2009 balance sheet showed long‐term debt of $2.9 million. The 2009 income statement showed an interest expense of $170,000. What was the firm’s cash flow to creditors during 2009? #2.12 The 2008 balance sheet of Maria’s Tennis Shop, Inc., showed $740,000 in the common stock account and $5.2 million in the additional paid‐in‐surplus account. The 2009 balance‐sheet showed $815,000 and $5.5 million in the same two accounts, respectively. If the company paid out $490,000 in cash dividends during 2009, what was the cash flow to stockholders for the year? #2.13 Given the information for Maria’s Tennis Shop, Inc., in Problems 11 and 12, suppose you already know that the firm’s net capital spending for 2009 was $940,000, and that the firm reduced its net working capital investment by $85,000. What was the firm’s 2009 operating cash flow, or OCF? #2.17 Dimeback, Inc., is obligated to pay its creditors $7,300 during the year. A. What is the market value of the shareholders’ equity if assets have a market value of $8,400? B. What if assets equals $6,700? Leverage example: • Mike invested $100,000 in his restaurant and now wants to expand to other locations. He needs to raise additional $500,000, and must decide between a bank loan (to be repaid next period) or additional equity. Assume the interest rate on the loan is zero percent. • Let’s say earnings next period = $1 million • What is Mike’s portion of earnings if he finances by: – $100K bank loan + additional equity for remaining need? – $250K bank loan + additional equity for remaining need? ...
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- Spring '08