Marketing

Topics: Generally Accepted Accounting Principles, Balance sheet, Depreciation Pages: 8 (1181 words) Published: October 16, 2014


1. Building a balance sheet
Wow Dat, Inc., has current assets for $3,840, net fixed assets of $10,190, current liabilities of $2,470, and long-term debt of $3,980. What is the value of the shareholders equity account for this firm? How much is net working capital? Balance sheet

Current assets3840Current liabilities 2470
Net fixed assets 10190long-term depts3980
Owners equity7580
Total assets 14030total liabilities & equity14030

Owners equity = total liabilities – Current liabilities – long – term debt

=14030 – 2470 – 3980
= 7580

Net working capital = current assest – current liabilities NWC = 3840 – 2470
NWC = 1370

2. Building an income statement
Lifetime, Inc., has sales of $585,000, cost of $273,000, depreciation expense of $71,000, interest expense of $38,000, and tax rate of 40%. What is the net income for this firm?

Income statement

Sales 585000
Costs273000
Deprectiation71000
EBIT 241000
Interest 38000
Taxable income203000
Taxes81200
Net Income121800

6. Calculating Taxes
The SGS Co. Had $274,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate the company’s income taxes.

0.15(50000)+0.25(25000)+0.34(25000)+0.39(173000)=89720

9. Calculating Net Capital Spending
Rotweiler Obedienece School’s December 31, 2009, balance sheet showed net fixed assets of $1.725 million, and the December 31,2010, balance sheet showed net fixed assets of $2.04 million. The company’s 2010 income statement showed a depreciation expense of $321,000. What was Rotweiler net capital spending for 2010?

Net Capital spending = NFA Ending – NFA Beginning + Depreciation = 1725000 – 2040000 + 321000
636000

14. Calculating Total Cash Flows.
Sheffield Co. Shows the following information on its 2010 income statement: sales = $153,000; costs $81,900; other expenses =$5,200; depreciation expense =$10,900; interest expense=$8,400; taxes =$16,330; dividends =$7,200. In addition, you’re told that the firm issued $2,600 in new equity during 2010, and the redeemed $3,900 in outstanding long-term debt.

Income statement

Sales 153000
Costs81900
Other expenses5200
Deprectiation10900
EBIT 55000
Interest 8400
Taxable income49900
Taxes16330
Net Income30270

Dividends = 7200
New equity = 2600
Redeeemed Debts = 3900

a. What is the 2010 operating cash flow?

OCF = EBIT + depreciation – Taxes
OCF = 55000 + 10900 – 16330
OCF = 49570

What is the 2010 Cash flow creditors?
Cash flow to creditors = interest paid – net new borrowings = 8400 – (-3900) = $12300

c. What is the cash flow to stockholders?

Cash flow to stockholder = dividends – Net new equity
= 7200 – 2600
= $ 4600

d. If net fixed assets increased by $19475 during the year, what was the addition to NWC?

Cash flows from assets = cash flow to creditors + cash flow to stockholders = 12300 + 4600
= $ 16900

Net capital spending = depreciation + increase in fixed assets = 10900 + 19475
= $ 30375

Cash flow from assets = OFC – change in NWC – net capital spending 16900 = 49570 – change in NWC – 30375
Change in NWC = $ 2295

18. Maeginal versus Average Tax Rates.
(Refer to Table 2.3) we love Growth, Inc., has $89000 in taxable income, and We Love Income, Inc., has 8,900,000 in taxable income.

a. What is the tax bill for each firm?

WLG, Inc. = 0.15(50,000)+0.25(25,000)+0.34(14,000)
= 7500 + 6250 + 4760 = 18510

WLI, Inc. = 0.15(50,000)+0.25(25,000)+0.34(25,00)+0.39(235000)+0.34(8,565,000) = 7500 + 6250 + 8500 + 91650 + 2,912,100 = 3,026,000

b. Suppose both firms have identified a new project that will increase taxable income by $5000. How...
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