Financial Statements, Cash Flow, and Taxes - Solutions5

Financial Statements, Cash Flow, and Taxes - Solutions5 -...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 41 of 73 Pages amortization) EBITDA $3,000.00 $2,700.00 Depreciation $750.00 $675.00 Earnings before interest and taxes $2,250.00 $2,025.00 Interest $250.00 $185.00 Earnings before taxes $2,000.00 $1,840.00 Taxes (35%) $700.00 $644.00 Net income available to common stockholders $1,300.00 $1,196.00 Common dividends $315.00 $289.80 Balance Sheet Year: 2004 Year: 2003 Assets: Cash and marketable securities $1,500.00 $1,350.00 Accounts receivable $4,500.00 $4,050.00 Inventories $6,000.00 $5,400.00 Total current assets $12,000.00 $10,800.00 Net plant and equipment $7,500.00 $6,750.00 Total assets $19,500.00 $17,550.00 Liabilities and equity: Accounts payable $3,000.00 $2,700.00 Notes payable $1,000.00 $350.00 Accruals $2,015.00 $2,000.00 Total current liabilities $6,015.00 $5,050.00 Long-term bonds $1,500.00 $1,500.00 Total debt $7,515.00 $6,550.00 Common stock (50 million shares) $10,000.00 $10,000.00 Retained earnings $1,985.00 $1,000.00 Total common equity $11,985.00 $11,000.00 Total liabilities and equity $19,500.00 $17,550.00 41. Determine your company's free cash flow for 2004. A. -$157.50 * B. -$172.50 C. -$177.50 D. -$167.50 E. -$162.50 NOWC 2003 = Current assets - Non-interest charging current liabilities = $10,800 - $4,700 = $6,100 NOWC 2004 = Current assets - Non-interest charging current liabilities
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 42 of 73 Pages = $12,000 - $5,015 = $6,985 Δ NOWC = $6,985 - $6,100 = $885 NFA 2003 = $6,750 NFA 2004 = $7,500 Δ NFA = $7,500 - $6,750 = $750 Δ GFA = Δ NFA + DEP = $750 + $750 = $1,500 NOPAT 2004 = ($2,250)(1-.35) = $1,462.50 OCF 2004 = NOPAT 2004 + DEP = $1,462.5 + $750 = $2,212.50 FCF 2004 = NOPAT 2004 - Δ NOWC - Δ NFA = $1,462.50 - $885 - $750 = -$172.50 FCF 2004 = OCF 2004 - Δ NOWC - Δ GFA = $2,212.50 - $885 - $1,500 = -$172.50 Proof : FCF - $172.50 Interest - $250.00 Tax Shelter + $ 87.50 Dividends - $315.00 Notes Payable + $650.00 Total $ 0.00 42. Assume that your firm plans to take on a project that will have an infinite life and produce the free cash flows listed below. Also assume that the $10,000 invested in Year 0 was supplied by investors as $5,000 of debt, at a before-tax cost of debt of 5 percent, and $5,000 of equity, at a cost of equity of 12 percent. Finally, you may assume that the firm’s tax rate is 40 percent. Given this data, determine the net present value of this project. Year OCF NOWC GFA FCF 0 $0 -$4,000 -$6,000 -$10,000 1 $1,200 $0 $0 $1,200 2 $1,200 $0 $0 $1,200 3 $1,200 $0 $0 $1,200 $1,200 $0 $0 $1,200 $1,200 $0 $0 $1,200 $1,200 $0 $0 $1,200 A. $3,000 * B. $6,000 C. $4,000
Background image of page 2
Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 43 of 73 Pages D. $7,000 E. $5,000 WACC = (.05)(1-.4)(.5) + (.12)(.5) = .015 + .06 = .075 = 7.5% Enterprise Value = $1,200 / .075 = $16,000
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 10

Financial Statements, Cash Flow, and Taxes - Solutions5 -...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online