Ch 2 Financial Statemetns and Cash Flow_1

After paying out 500 of this in the form of dividends

Info icon This preview shows pages 11–15. Sign up to view the full content.

View Full Document Right Arrow Icon
raising $1,417 in the form of new equity. After paying out $500 of this in the form of dividends to shareholders and $450 in the form of interest to creditors, $467 was left to meet the firm’s cash flow needs for investment. 22. a. Total assets 2005 = $650 + 2,900 = $3,550 Total liabilities 2005 = $265 + 1,500 = $1,765 Owners’ equity 2005 = $3,550 – 1,765 = $1,785 Total assets 2006 = $705 + 3,400 = $4,105 Total liabilities 2006 = $290 + 1,720 = $2,010 Owners’ equity 2006 = $4,105 – 2,010 = $2,095 2-11
Image of page 11

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

View Full Document Right Arrow Icon
b. NWC 2005 = CA05 – CL05 = $650 – 265 = $385 NWC 2006 = CA06 – CL06 = $705 – 290 = $415 Change in NWC = NWC06 – NWC05 = $415 – 385 = $30 c. We can calculate net capital spending as: Net capital spending = Net fixed assets 2006 – Net fixed assets 2005 + Depreciation Net capital spending = $3,400 – 2,900 + 800 Net capital spending = $1,300 So, the company had a net capital spending cash flow of $1,300. We also know that net capital spending is: Net capital spending = Fixed assets bought – Fixed assets sold $1,300 = $1,500 – Fixed assets sold Fixed assets sold = $1,500 – 1,300 = $200 To calculate the cash flow from assets, we must first calculate the operating cash flow. The operating cash flow is calculated as follows (you can also prepare a traditional income statement): EBIT = Sales – Costs – Depreciation EBIT = $8,600 – 4,150 – 800 EBIT = $3,650 EBT = EBIT – Interest EBT = $3,650 – 216 EBT = $3,434 Taxes = EBT × .35 Taxes = $3,434 × .35 Taxes = $1,202 OCF = EBIT + Depreciation – Taxes OCF = $3,650 + 800 – 1,202 OCF = $3,248 Cash flow from assets = OCF – Change in NWC – Net capital spending. Cash flow from assets = $3,248 – 30 – 1,300 Cash flow from assets = $1,918 d. Net new borrowing = LTD06 – LTD05 Net new borrowing = $1,720 – 1,500 Net new borrowing = $220 Cash flow to creditors = Interest – Net new LTD Cash flow to creditors = $216 – 220 Cash flow to creditors = –$4 Net new borrowing = $220 = Debt issued – Debt retired Debt retired = $300 – 220 = $80 2-12
Image of page 12
23. Balance sheet as of Dec. 31, 2005 Cash $2,107 Accounts payable $2,213 Accounts receivable 2,789 Notes payable 407 Inventory 4,959 Current liabilities $2,620 Current assets $9,855 Long-term debt $7,056 Net fixed assets $17,669 Owners' equity $17,848 Total assets $27,524 Total liab. & equity $27,524 Balance sheet as of Dec. 31, 2006 Cash $2,155 Accounts payable $2,146 Accounts receivable 3,142 Notes payable 382 Inventory 5,096 Current liabilities $2,528 Current assets $10,393 Long-term debt $8,232 Net fixed assets $18,091 Owners' equity $17,724 Total assets $28,484 Total liab. & equity $28,484 2005 Income Statement 2006 Income Statement Sales $4,018.00 Sales $4,312.00 COGS 1,382.00 COGS 1,569.00 Other expenses 328.00 Other expenses 274.00 Depreciation 577.00 Depreciation 578.00 EBIT $1,731.00 EBIT $1,891.00 Interest 269.00 Interest 309.00 EBT $1,462.00 EBT $1,582.00 Taxes (34%) 497.08 Taxes (34%) 537.88 Net income $ 964.92 Net income $1,044.12 Dividends $490.00 Dividends $539.00 Additions to RE $474.92 Additions to RE $505.12 24. OCF = EBIT + Depreciation – Taxes OCF = $1,891 + 578 – 537.88 OCF = $1,931.12 Change in NWC = NWC end – NWC beg = (CA – CL) end – (CA – CL) beg Change in NWC = ($10,393 – 2,528) – ($9,855 – 2,620) Change in NWC = $7,865 – 7,235 = $630 Net capital spending = NFA end – NFA beg + Depreciation Net capital spending = $18,091 – 17,669 + 578 Net capital spending = $1,000 2-13
Image of page 13

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

View Full Document Right Arrow Icon
Cash flow from assets = OCF – Change in NWC – Net capital spending Cash flow from assets = $1,931.12 – 630 – 1,000 Cash flow from assets = $301.12 Cash flow to creditors = Interest – Net new LTD Net new LTD = LTD end – LTD beg Cash flow to creditors = $309 – ($8,232 – 7,056) Cash flow to creditors = –$867 Net new equity = Common stock end – Common stock beg
Image of page 14
Image of page 15
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern