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Chap._2_homework - CHAPTER 2 FINANCIAL STATEMENTS CASH FLOW...

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(Difficulty: E = Easy, M = Medium, and T = Tough) . Balance sheet Diff: E Below are the 2001 and 2002 year-end balance sheets for Kewell Boomerangs: Assets: 2002 2001 Cash $ 100,000 $ 85,000 Accounts receivable 432,000 350,000 Inventories 1,000,000 700,000 Total current assets $1,532,000 $1,135,000 Net fixed assets 3,000,000 2,800,000 Total assets $4,532,000 $3,935,000 Liabilities and equity: Accounts payable $ 700,000 $ 545,000 Notes payable 800,000 900,000 Total current liabilities $1,500,000 $1,445,000 Long-term debt 1,200,000 1,200,000 Common stock 1,500,000 1,000,000 Retained earnings 332,000 290,000 Total common equity $1,832,000 $1,290,000 Total liabilities and equity $4,532,000 $3,935,000 Kewell Boomerangs has never paid a dividend on its common stock. Kewell issued $1,200,000 of long-term debt in 1997. This debt was non-callable and is scheduled to mature in 2027. As of the end of 2002, none of the principal on this debt has been repaid. Assume that 2001 and 2002 sales were the same in both years. Which of the following statements is most correct? a. Kewell had negative net income in 2002. b. Kewell issued new common stock in 2002. c. Kewell issued long-term debt in 2002. d. Statements a and b are correct. e. All of the statements above are correct. 2. Income statement Diff: E Cox Corporation recently reported an EBITDA of $22.5 million and $5.4 million of net income. The company has $6 million interest expense and the corporate tax rate is 35 percent. What was the company’s depreciation and amortization expense? CHAPTER 2 FINANCIAL STATEMENTS, CASH FLOW, AND TAXES 1
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3. Net income Diff: M Edge Brothers recently reported net income of $385,000. The tax rate is 40 percent. The company’s interest expense was $200,000. What would have been the company’s net income if it would have been able to double its operating income (EBIT), assuming that the company’s tax rate and interest expense remain unchanged? 4. EBIT, net income, and operating cash flow Diff: E Analysts who follow Cascade Technology recently noted that, relative to the previous year, the company’s operating income (EBIT) and net income had declined but its operating cash flow had increased. What could explain these changes? 5. Net cash flow Diff: E Analysts who follow Sierra Nevada Inc. recently noted that, relative to the previous year, the company’s net cash flow was larger but cash on the firm’s balance sheet had declined. What factors could explain these changes? a. The company sold a division and received cash in return. b. The company cut its dividend. c. The company made a large investment in new plant and equipment. d. Statements a and b are correct. e. Statements b and c are correct.
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