Ch 3 homework solutions

Ch 3 homework solutions - BUSINESS FINANCE CHAPTER 3...

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Unformatted text preview: BUSINESS FINANCE CHAPTER 3 HOMEWORK SOLUTIONS P3-4. a. Cash flow from operations: Sales revenue $400,000 Less: Total costs before depreciation, interest, and taxes 290,000 Depreciation expense 34,200 Interest expense 15,000 Net profit before taxes $ 60,800 Less: Taxes at 40% 24,320 Net profit after taxes $ 36,480 Plus: Depreciation 34,200 Cash flow from operations $ 70,680 b. Depreciation and other noncash charges serve as a tax shield against income, increasing annual cash flow. P3-9. March April May June July Sales $50,000 $60,000 $70,000 $80,000 $100,000 Cash sales (0.20) $10,000 $12,000 $14,000 $16,000 $ 20,000 Lag 1 month (0.60) 36,000 42,000 48,000 Lag 2 months (0.20) 10,000 12,000 14,000 Other income 2,000 2,000 2,000 Total cash receipts $62,000 $72,000 $ 84,000 Disbursements Purchases $50,000 $70,000 $ 80,000 Rent 3,000 3,000 3,000 Wages & salaries 6,000 7,000 8,000 Dividends 3,000 Principal & interest 4,000 Purchase of new equipment 6,000 Taxes due 6,000 Total cash disbursements $59,000 $93,000 $97,000 Total cash receipts $62,000 $72,000 $84,000 Total cash disbursements 59,000 93,000 97,000 Net cash flow $ 3,000 ($21,000) ($13,000) Add: Beginning cash 5,000 8,000 (13,000 ) Ending cash $ 8,000 ($13,000) ($26,000) Minimum cash 5,000 5,000 5,000 Required total financing (notes payable) $18,000 $31,000 Excess cash balance (marketable securities) $ 3,000 The firm should establish a credit line of at least $31,000....
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This note was uploaded on 07/18/2011 for the course FINANCE 330 taught by Professor Nichols during the Spring '11 term at Maryland.

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Ch 3 homework solutions - BUSINESS FINANCE CHAPTER 3...

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