Finance Review Guide

Chapter 2 HOMEWORK ASSIGNMENTS #1. Billy’s Exterminators, Inc., has sales of $643,000, costs of $280,000, depreciation expense of $32,000, interest expense of $26,000, and a tax rate of 35 percent. What is the net income for this firm? | |

Sales : 643,000
Costs: 280,000
Depreciation: 32,000
Operating Income: 643,000 – 280,000 = 363,000
EBIT: 363,000 – 32,000 – 26,000 = 305,000
Taxes: 305,000 * .35 = 106,750
Net Income = 305,000 – 106,750 = 198,250
SOLUTION: 198,250

#2. Given the following information, what is the cash flow to creditors for 2011? | 2010 | 2011 | Sales | 5831 | 6423 | COGS | 3670 | 4109 | Interest | 291 | 280 | Depreciation | 125 | 122 | Cash | 250 | 313 | Accounts receivables | 1092 | 1162 | Current liabilities | 717 | 1051 | Inventory | 1495 | 1521 | Long-term debt | 2400 | 1100 | Net fixed assets | 4006 | 4123 | Common Stock | 1900 | 2100 | Taxes | 590 | 670 |

PROVIDE SOLUTION HERE:

CF to creditors = Interest paid – net new long-term-borrowing
Net New Long-term Borrowing: 1,100 – 2,400 = -1,300
Interest Paid: (291-280) = 9

SOLUTION = 1,309

#3. Given below is financial information for Fowler’s Flower Shop. Fowler’s Flower Shop Income Statement
For the Years Ended December 31, 2010 and 2011. | 2011 | 2010 | Sales | $3,550,000 | $3,340,000 | Cost of Goods Sold | 1,750,000 | 1,662,000 | Other Expenses | 276,500 | 220,000 | Depreciation | 80,000 | 66,000 | EBIT | $1,443,500 | $1,392,000 | Interest Expense | 243,000 | 306,500 | EBT | $1,200,500 | $1,085,500 | Taxes (35%) | 420,175 | 379,925 | Net Income | $780,325 | $705,575 | | | | Dividends | $108,000 | $74,000 |

Fowler’s Flower Shop
Balance Sheet
December 31, 2010 & December 31, 2011 Assets | 2011 | 2010 | Liabilities & S.E. | 2011 | 2010 | Current Assets | | | Current Liabilities | | | Cash | 335,952 | 210,800 | Accounts Payable | 425,147 |