finance class notes

# finance class notes - Solution to Problem During 2006,...

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Unformatted text preview: Solution to Problem During 2006, Feder Co raised some amount of new debt (borrowed). The whole amount of borrowing proceeds was used to buy back the firms equity stock (share repurchases). The firm also paid \$5.0 million in dividends and \$1.0 million in interest payments. What was the cash flow from assets for the year? Cash flow from assets = = Cash flow to debtholders + Cash flow to stockholders Net new borrowing = , therefore Net Equity Raised = Cash flow to debtholders = Interest Paid - Net new borrowing = 1M-X Cash flow to stockholders = Dividends - Net Equity Raised = = 5M (-X)= \$5M + X What type of transaction took place in 2006? Balance sheet as of 2005 Cash \$5 Current Liab \$5 A/R \$5 LT Debt \$15 Common Stock \$20 PP&amp;E \$40 R/E \$10 Assets \$50 Total \$50 Income statement for 2006 Sales \$ 100 2005 2006 Costs 90 10-5=5 15-5=10 liquidity rises because cash rises Dep Net \$ 10 Div= \$10 ; R/E= \$0 Balance sheet as end of 2006 Cash \$10 Current Liab \$5 A/R \$5 LT Debt \$20 Common Stock \$20 PP&amp;E \$40 R/E \$10 Assets \$55 Total \$55 What type of transaction took place in 2006?What type of transaction took place in 2006?...
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## This note was uploaded on 02/08/2012 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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finance class notes - Solution to Problem During 2006,...

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