Chapter 3 Finance 302 Homework Problems

# Chapter 3 Finance 302 Homework Problems - Chapter 3 Finance...

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Chapter 3 Finance 302 Homework Problems ST-1 . NET INCOME AND CASH FLOW Last year Rattner Robotics has \$5 million in operating income (EBIT). Its depreciation expense was \$1 million, its interest expense was \$1 million, and its corporate tax rate was 40%. At year-end, it had \$14 million in current assets, \$3 million in accounts payable, \$1 million in accruals, and \$15 million in net plant and equipment. Assume that Rattner’s only noncash item was depreciation. a) What was the company’s net income? b) What was its net working capital (NWC)? c) Rattner had \$12 million in net plant and equipment the prior year. Its net working capital has remained constant over time. What is the company’s free cash flow (FCF) for the year that just ended? d) If the firm has \$4.5 million in retained earnings at the beginning of the year and paid out total dividends of \$1.2 million, what was its retained earnings at the end of the year? Assume that all dividends declared were actually paid.

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3-1 INCOME STATEMENT Little Books Inc. recently reported \$3 million of net income. Its EBIT was \$6 million, and its tax rate was 40%. What was its interest expense? [Hint: write out the headings for an income statement and fill in the known values. Then divide \$3 million of net income by (1-T) = 0.6 to find the pretax income. The difference between EBIT and taxable income must be the interest expense. Use this same procedure to complete similar problems.] 3-2 INCOME STATEMENT Pearson Brothers recently reported an EBITDA of \$7.5 million and net income of \$1.8 million. It had \$2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization? 3.4 BALANCE SHEET Which of the following actions are most likely to directly increase cash as shown on a firm’s balance sheet? Explain and state the assumptions that underlie your answer. a) It issues \$2 million of new common stock. b) It buys new plant and equipment at a cost of \$3 million. c) It reports a large loss for the year. d) It increases the dividends paid on its common stock. 3.5 STATEMENT OF STOCKHOLDERS’ EQUITY Computer World Inc. paid out \$22.5 million in total common dividends and reported \$278.9 million of retained earnings at year-end. The prior year’s retained earnings were \$212.3 million. What was the net income? Assume that all dividends declared were actually paid.
3.6 STATEMENT OF CASH FLOWS W.C. Cycling has \$55,000 in cash at year-end 2007 and \$25,000 in cash at year-end 2008. Cash flow from long-term investing activities totaled -\$250,000, and cash flow from financing activities totaled +\$170,000. a) What was the cash flow from operating activities?

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## This note was uploaded on 10/17/2011 for the course FINC 302 taught by Professor Lawrence during the Spring '11 term at Nicholls State.

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Chapter 3 Finance 302 Homework Problems - Chapter 3 Finance...

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