# FI2011_Sample_Exam_1_-_Answers_and_Solut - FI311 Section 3...

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FI311 – Section 3 – Sample Exam 1 – Answers and Solutions Use the following information for questions 1-4 Shaky Shake, Inc. 2010 2009 Sales \$4,507 \$4,203 Cost of Goods Sold 2,633 2,422 Depreciation 952 785 Interest paid 196 180 Dividends 250 225 Current Assets 2,429 2,205 Net Fixed Assets 7,650 7,344 Current liabilities 1,255 1,003 Long term debt 2,085 3,106 Tax rate 35% 1. What is the value of equity for Shaky Shake, Inc. at the end of 2010? Profit and Loss 2010 2009 Sales 4,507 4,203 COGS 2,633 2,422 Depreciation 952 785 EBIT 922 996 Interest paid 196 180 EBT 726 816 Taxes (35%) 254 285.6 Net Income 471 530.4 Dividends paid 250 225 Balance Sheet 2010 2009 Current Assets 2,429 2,205 Net Fixed Assets 7,650 7,344 Total Assets 10,079 9,549 Current Liab. 1,255 1,003 Long Term Liab. 2,085 3,106 Total Liabil. 3,340 4,109 Total Equity 6,739 5,440 Total L+E 10,079 9,549 The value of Equity at the end of 2010 can be found as the different between Total Assets and Total Liabilities, based on the fundamental accounting Identity (A=L+E). The answer is \$6,739 (B)

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2 [FI311 – SECTION 3 – SAMPLE EXAM 1] 2. What is the cash flow from operations for 2010? OCF = EBIT + Depreciation – Taxes OCF = 922+952-254 = \$1,620 (answer E) 3. What is the change in net working capital? Change in NWC = (CAend – CLend) - (CAbeg-CLbeg) Change in NWC = (2,429-1,255)-(2,205-1,003) = 1,174-1,202 = -28 (answer A) 4. What is the cash flow to creditors? CFC = interest paid - net new long term borrowing CFC = 196 – (2,085-3,106) = 196 – (-1,021) = 1,217 (answer B) Use the following information for questions 5 and 6: Shiny Star, Inc. purchased new machinery three years ago for \$7 million. The machinery can be sold today for \$4.9 million. Shiny Star’s current balance sheet shows net fixed assets of \$3.7 million, current liabilities of \$1.1 million, and net working capital of \$380,000. If all the current assets of Shiny Star were liquidated today, the company would receive \$1.6 million cash. 5. What is the book value of the firm’s assets? Book value of Fixed Assets = Net fixed assets = \$3.7 million Net Working Capital = \$380,000 = CA-CL = CA - \$1,100,000 CA = \$1,100,000 + \$380,000 = \$1,480,000 (this is the book value of CA) Book value of total assets = \$3,700,000 + \$1,480,000 = \$5,180,000 (answer A) 6. What is the market value of the firm’s assets? Market value of fixed assets = \$4.9 million Market value of current assets = \$1.6 million Market value of total assets (million) = \$4.9 + \$1.6 = \$6.5 million (answer C) 7. Using the following information for Patsy Pizza Co. calculate the depreciation expense. Sales = \$41,000; cost of goods sold = \$19,500; addition to retained earnings = \$5,100; dividends paid = \$1,500; interest expense = \$4,500; tax rate = 35%. Jot down the structure of the P&L (Income Statement) and fill in the known
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