Ch 2 Financial Statemetns and Cash Flow_1

# After paying out 500 of this in the form of dividends

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

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

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

View Full Document
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
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

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

View Full Document
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
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern