Chapter 2 Solutions

# Chapter 2 Solutions - Chapter 2 Solutions 1 2 5 6 To find...

This preview shows pages 1–3. Sign up to view the full content.

Chapter 2 Solutions 1. To find owners’ equity, we must construct a balance sheet as follows: Balance Sheet CA \$ 5,300 CL \$ 3,900 NFA 26,000 LTD 14,200 OE ?? TA \$31,300 \$31,300 We know that total liabilities and owners’ equity (TL & OE) must equal total assets of \$31,300. We also know that TL & OE is equal to current liabilities plus long-term debt plus owner’s equity, so owner’s equity is: OE = \$31,300 –14,200 – 3,900 = \$13,200 NWC = CA – CL = \$5,300 – 3,900 = \$1,400 2. The income statement for the company is: Income Statement Sales \$493,000 Costs 210,000 Depreciation 35,000 EBIT \$248,000 Interest 19,000 EBT \$229,000 Taxes 80,150 Net income \$148,850 One equation for net income is: Net income = Dividends + Addition to retained earnings Rearranging, we get: Addition to retained earnings = Net income – Dividends Addition to retained earnings = \$148,850 – 50,000 Addition to retained earnings = \$98,850 5. To calculate OCF, we first need the income statement: Income Statement Sales \$14,900 Costs 5,800 Depreciation 1,300 EBIT \$7,800 Interest 780 Taxable income \$7,020 Taxes 2,808 Net income \$4,212 OCF = EBIT + Depreciation – Taxes OCF = \$7,800 + 1,300 – 2,808 OCF = \$6,292 6. Net capital spending = NFA end – NFA beg + Depreciation Net capital spending = \$1,730,000 – 1,650,000 + 284,000 Net capital spending = \$364,000

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

View Full Document
11. a.
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 11/02/2011 for the course FIN 320 taught by Professor Staff during the Fall '08 term at Ill. Chicago.

### Page1 / 4

Chapter 2 Solutions - Chapter 2 Solutions 1 2 5 6 To find...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online