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Cash Flows

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Cash Flows
CHAPTER 2
CASH FLOWS AND FINANCIAL
STATEMENTS AT SUNSET BOARDS

Below are the financial statements that you are asked to prepare.

1. The income statement for each year will look like this:

Income Statement 2008 2009
Sales $190,119 $231,840
Cost of goods sold 96,952 122,418
Selling & administrative 19,067 24,886
Depreciation 27,370 30,936
EBIT $46,730 $53,600
Interest 5,950 6,820
EBT $40,780 $46,780
Taxes (20%) 8,156 9,356
Net income $32,624 $37,424 Dividends $16,312 $18,712
Addition to retained earnings 16,312 18,712

2. The balance sheet for each year will be:

Balance sheet as of Dec. 31, 2008
Cash $13,990 Accounts payable $24,725
Accounts receivable 9,913 Notes payable 11,270
Inventory 20,861 Current liabilities $35,995
Current assets $44,764 Long-term debt $60,950
Net fixed assets $120,750 Owners' equity 68,569
Total assets $165,514 Total liab. & equity $165,514

In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as:

Equity = $165,514 – 35,995 – 60,950
Equity = $68,569

Balance sheet as of Dec. 31, 2009
Cash $21,137 Accounts payable $28,003
Accounts receivable 12,859 Notes payable 12,305
Inventory 28,628 Current liabilities $40,308
Current assets $62,624 Long-term debt $70,150
Net fixed assets $147,115 Owners' equity 99,281
Total assets $209,739 Total liab. & equity $209,739

The owner’s equity for 2009 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so:

Equity = $68,569 + 18,712 + 12,000
Equity = $99,281

3. Using the OCF equation:

OCF = EBIT + Depreciation – Taxes

The OCF for each year is:

OCF2008 = $46,730 + 27,370 – 8,156
OCF2008 = $65,944

OCF2009 = $53,600 + 30,936 – 9,356
OCF2009 = $75,180

4. To calculate the cash flow from

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