Q1D - operations with short term debt and with common...

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QUIZ ONE: BUSINESS 312 NAME ____________________________ Answer this quiz directly on this sheet of paper. You can use the back if necessary. The following information is available on the financial accounts of ABC Corporation. 1997 Sales ? Cost of Goods Sold ? General and Administrative Expenses ? interest 35 depreciation (which equals CCA) 100 corporate tax (at 40%) ? Net Income ? 1996 1997 Accounts Receivable 250 275 Inventory 150 175 Net Fixed Assets ? ? Short Term Debt ? 400 Accounts Payable 200 225 Equity ? ? “Equity” represents the sum of all of the accounting equity accounts. The following additional financial information is available for ABC. For both 1996 and 1997, ABC had a trade capital to invested capital ratio of 25% (trade capital at the end of the year divided by invested capital at the end of the year). ABC has financed its
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Unformatted text preview: operations with short term debt and with common equity. Borrowing or repayment of debt is undertaken by ABC at the end of the year . Therefore, ABC’s interest charge on its income statement is equal to outstanding short-term debt at the beginning of 1997 (end of 1996) times the interest rate on this debt which is 7% per annum. Dividends for 1997 are $95. ABC issued shares in the amount of $200 of shares in 1997. Required: Based on the information at hand, and the definition(s) of free cash flow developed in class , find free cash flow for 1997 using both the operating and the financial definitions. Find ABC’s 1997 rate of return on invested capital, after tax and after depreciation, using beginning of period invested capital. Solution...
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