Assignment_SolutionsPart1

Assignment_SolutionsPart1 - BUSI408: CORPORATE FINANCE...

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BUSI408: CORPORATE FINANCE Assignment 1 - Solutions for PART 1 Instructor: Serdar Aldatmaz ____________________________________________________________________________________ _ Chapter 2 1. To find owner’s equity, we must construct a balance sheet as follows: Balance Sheet CA $5,100 CL $4,300 NFA 23,800 LTD 7,400 OE ?? TA $28,900 $28,900 We know that total liabilities and owner’s equity (TL & OE) must equal total assets of $28,900. 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 = $28,900 – 7,400 – 4,300 = $17,200 NWC = CA – CL = $5,100 – 4,300 = $800 1
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2. The income statement for the company is: Income Statement Sales $586,000 Costs 247,000 Depreciation 43,000 EBIT $296,000 Interest 32,000 EBT $264,000 Taxes(35%) 92,400 Net income $171,600 14. To find the OCF, we first calculate net income. Income Statement Sales $196,000 Costs 104,000 Other expenses 6,800 Depreciation 9,100 EBIT $76,100 Interest 14,800 Taxable income $61,300 Taxes 21,455 Net income $39,845 Dividends $10,400 Additions to RE $29,445 a. OCF = EBIT + Depreciation – Taxes = $76,100 + 9,100 – 21,455 = $63,745 b. CFC = Interest – Net new LTD = $14,800 – (–7,300) = $22,100 Note that the net new long-term debt is negative because the company repaid part of its long- term debt. c. CFS = Dividends – Net new equity = $10,400 – 5,700 = $4,700 d. We know that CFA = CFC + CFS, so: CFA = $22,100 + 4,700 = $26,800 CFA is also equal to OCF – Net capital spending – Change in NWC. We already know OCF. Net capital spending is equal to: Net capital spending = Increase in NFA + Depreciation = $27,000 + 9,100 = $36,100 Now we can use: CFA = OCF – Net capital spending – Change in NWC $26,800 = $63,745 – 36,100 – Change in NWC 2
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Solving for the change in NWC gives $845, meaning the company increased its NWC by $845. 22. a. Total assets 2008 = $653 + 2,691 = $3,344 Total liabilities 2008 = $261 + 1,422 = $1,683 Owners’ equity 2008 = $3,344 – 1,683 = $1,661 Total assets 2009 = $707 + 3,240 = $3,947 Total liabilities 2009 = $293 + 1,512 = $1,805 Owners’ equity 2009 = $3,947 – 1,805 = $2,142 b. NWC 2008 = CA08 – CL08 = $653 – 261 = $392 NWC 2009 = CA09 – CL09 = $707 – 293 = $414 Change in NWC = NWC09 – NWC08 = $414 – 392 = $22 3
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c. We can calculate net capital spending as: Net capital spending = Net fixed assets 2009 – Net fixed assets 2008 + Depreciation Net capital spending = $3,240 – 2,691 + 738 = $1,287 So, the company had a net capital spending cash flow of $1,287. We also know that net capital spending is: Net capital spending = Fixed assets bought – Fixed assets sold $1,287 = $1,350 – Fixed assets sold Fixed assets sold = $1,350 – 1,287 = $63 To calculate the cash flow from assets, we must first calculate the operating cash flow. The income statement is: Income Statement Sales $ 8,280.00 Costs 3,861.00 Depreciation expense 738 .00 EBIT $3,681.00
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Assignment_SolutionsPart1 - BUSI408: CORPORATE FINANCE...

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