Chapter 2 Solutions

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

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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
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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.

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

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