Financial Statements, Cash Flow, and Taxes - Solutions2

Financial Statements, Cash Flow, and Taxes - Solutions2 -...

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Unformatted text preview: Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 11 of 73 Pages C. $50,000 D. $70,000 * E. $40,000 Losses can be carried back 2 years and carried forward 15 years. The firm will use $200,000 of the current loss to shield its income from 2 years ago and $200,000 of the current loss to shield its income form last year. That will leave the firm with the remaining $100,000 of current loss to shield its expected income of $200,000 next year. This will leave the firm with expected taxable income for the coming year of $100,000 that, at a tax rate of 40 percent, will produce a tax liability of $40,000 . 7. Below is the level of taxable income (EBT) reported by your company over the past several years: Year Taxable Income 1997 $ 350,000 1998 650,000 1999 750,000 2000 250,000 2001 - 1,250,000 2002 750,000 The company was founded in 1997. You may assume that the appropriate corporate tax rate has been and will continue to be 38 percent. Assume that the company has taken full advantage of the Tax Code's carry-back and carry-forward provisions (firms can carry-back two years and carry-forward 20 years), and assume that the current provisions were applicable in 1997. What was the company's tax liability for 2002? A. $220,000 * B. $190,000 C. $250,000 D. $160,000 E. $280,000 The company can carry back its losses for 2 years Carry-back for 1999 and 2000 was $750,000 + $250,000 = $1,000,000 Carry-forward = $1,250,000 - $1,000,000 = $250,000 2002 Taxable Income = $750,000 - $250,000 = $500,000 Taxes Liability = ($500,000)(0.38) = $190,000 Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 12 of 73 Pages 8. Your firm had $4,000,000 of retained earnings on its balance sheet at the end of 2001. One year later, at the end of 2002, the firm had $5,250,000 of retained earnings on its balance sheet. The firm has 750,000 shares of common stock outstanding, and it paid a dividend of $0.45 per share in 2002. What were the firms earnings per share in 2002? A. $1.698 per share B. $2.362 per share * C. $2.117 per share D. $1.426 per share E. $1.894 per share Total Dividend = (750,000)($0.45) = $337,500 Change in Retained Earnings = $$5,250,000 - $4,000,000 = $1,250,000 Net Income = $337,500 + $1,250,000 = $1,587,500 EPS = $1,587,500 / 750,000 = $2.117 per share YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 9 - 11: Income Statement Year 1 Year 2 Sales $1,200.00 $1,800.00 Operating Costs -$1,020.00-$1,440.00 Depreciation -$55.00-$155.00 EBIT $125.00 $205.00 Interest -$25.00-$124.60 EBT $100.00 $80.40 Taxes (40%) -$40.00-$32.16 Net Income $60.00 $48.24 Dividends $40.00 $29.24 Assets Year 1 Year 2 Cash $15.00 $50.00 Accounts Receivable $200.00 $300.00 Inventories $250.00 $375.00 Current Assets $465.00 $725.00 Gross Plant & Equipment $1,100.00 $2,100.00 Less: Depreciation -$555.00-$710.00 Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 13 of 73 Pages...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Financial Statements, Cash Flow, and Taxes - Solutions2 -...

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