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Chapters 1-3 Review Problems and Answers

# Chapters 1-3 Review Problems and Answers - Papa Roach...

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Papa Roach Exterminators, Inc., has sales of \$586,000, costs of \$247,000, depreciation expense of \$43,000, interest expense of \$32,000, and a tax rate of 35 percent. The firm paid out \$73,000 in cash dividends, and has 85,000 shares of common stock outstanding. The earnings per share, or EPS are \$ and the dividends per share are \$. Explanation: 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 EPS = Net income / Shares = \$171,600 / 85,000 = \$2.02 per share DPS = Dividends / Shares = \$73,000 / 85,000 = \$0.86 per share So Long, Inc., has sales of \$27,500, costs of \$13,280, depreciation expense of \$2,300, and interest expense of \$1,105. If the tax rate is 35 percent, the operating cash flow, or OCF, is \$. Explanation: To calculate OCF, we first need the income statement: Income Statement Sales \$27,500

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Costs 13,280 Depreciation 2,300 EBIT \$11,920 Interest 1,105 Taxable income \$10,815 Taxes (35%) 3,785 Net income \$7,030 OCF = EBIT (1-Tax Rate) + Depreciation = 11,290(1-0.35) + 2,300 = 9,638.50 During 2009, Raines Umbrella Corp. had sales of \$550,000. Costs of goods sold, administrative and selling expenses, and depreciation expenses were \$467,500, \$55,000, and \$55,000, respectively. In addition, the company had an interest expense of \$82,500 and a tax rate of 36 percent. (Ignore any tax loss carryback or carryforward provisions.) a. Raines' net income for 2009 is \$. b. Raines' operating cash flow is \$. Explanation: a. Income Statement Sales \$550,000 COGS 467,500 A&S expenses 55,000 Depreciation 55,000 EBIT \$-27,500 Interest 82,500 Taxable income \$-110,000 Taxes (36%)
0 Net income \$-110,000 b. OCF = EBIT (1-Tax Rate) + Depreciation = (-27,500) (1 – 0.36) + 55,000 = 37,400 SDJ, Inc., has net working capital of \$1,370, current liabilities of \$3,720, and inventory of \$1,950.

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