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# Concept Questions 1. What is operating cash flow? In comparing accounting net income and operating cash flow, name two items you typically find in

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Concept Questions 1. What is operating cash flow? In comparing accounting net income and operating cash flow, name two items you typically find in net income that are not in operating cash flow. Explain what each is and why it is excluded in operating cash flow. (100 words) 2. Why might the revenue and cost figures shown on a standard income statement not be representative of the actual cash inflows and outflows that occurred during a period? (80 words) 3. Could a company’s change in NWC be negative in a given year? (Hint: Yes.) Explain how this might come about. What about net capital spending? (80 words) Calculation Questions 1. Volbeat Corp. shows the following information on its 2015 income statement: sales = \$267,000; costs = \$148,000; other expenses = \$8,200; depreciation expense = \$17,600; interest expense = \$12,400; taxes = \$32,620; dividends = \$15,500. In addition, you’re told that the firm issued \$6,400 in new equity during 2015 and redeemed \$4,900 in outstanding long-term debt. a. What is the 2015 operating cash flow? b. What is the 2015 cash flow to creditors? c. What is the 2015 cash flow to stockholders? d. If net fixed assets increased by \$25,000 during the year, what was the addition to NWC? 2. Consider the following abbreviated financial statements for Parrothead Enterprises:
a. What is owners’ equity for 2014 and 2015? b. What is the change in net working capital for 2015? c. In 2015, Parrothead Enterprises purchased \$2,080 in new fixed assets. How much in fixed assets did Parrothead Enterprises sell? What is the cash flow from assets for the year? (The tax rate is 35 percent.) d. During 2015, Parrothead Enterprises raised \$420 in new long-term debt. How much long-term debt must Parrothead Enterprises have paid off during the year? What is the cash flow to creditors? 3. Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. Calculate the following financial ratios for each year: a. Current ratio. b. Quick ratio. c. Cash ratio. d. NWC to total assets ratio. e. Debt–equity ratio and equity multiplier. f. Total debt ratio and long-term debt ratio. (End of Assignment 1)
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Income Statement
Sales
Costs
depreciation
Other expenses
EBIT
interest
Taxable income
Taxes (34%)
Net income
Dividends
a.
b.
c.
d.
Also,
so, 267000
148000
17600
8200
93200
12400...

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