Question

b. What ao yuu nvestor, why miaghit yul lio 7What is free cash flow? If you were an i cash fRow than net income? and still be valued by investors that is, could a negative free cash flow ever be v and i by investors? Explain your answer How are management's actions incorporat interconnected? 8 Would it be possible for a company to report negative free cash flow ed in EVA and MVA? How What does double taxation of corporate income mean? Could income ever taxation? Explain your answer Explain the following statement: Our tax rates are progressive be sube How does the deductibility of interest and dividends by the paying choice of financing (ie, the use of debt versus equity)? BALANCE SHEET The assets of Dallas & Associates consist entirely of curres plant and equipment. The firm has total assets of $2.5 million and net plan S2 million. It has notes payable of $150,000, long-term debt of $750,000, a of $1.5 million. The firm does have accounts payable and accruals on its balanice cnim only finances with debt and common equity, so it has no preferred stock on a. What is the company's total debt? and tot heet b. What is the amount of total liabilities and equity that appears on the firm's ba sheet? c. What is the balance of current assets on the firm's balance sheetl d. What is the balance of current liabilities on the firm's balance sheet? e. What is the amount of accounts payable and accruals on its balance sheet? (Hint Consider this as a single line item on the firm's balance sheet.) f. What is the firm's net working capital: g. What is the firm's net operating working capital? h. What is the explanation for the difference in your answers to parts f and g? INCOME STATEMENT Byron Books Inc. recently reported $13 million of net income Its EBIT was $20.8 million, and its tax rate was 35%. What was its interest expense?

Answer 1

Before proceeding to the points required, lets calculate some figures first -

• The company has Total Assets of $2.5m consisting of Net Plant and Equipment of $2.0m & Current Assets. So, Current Assets will be $0.5m (i.e. Total Assets (-) Net Plant & Equipment).
• As we know, Total Assets = Total Liabilities & Equity. So, Total liabilities & Equity will be $2.5m.
• Total liabilities & Equity = Common Equity + Long Term Debt + Notes Payable + Other Current Liabilities.
  • Accordingly, Other current Liabilities = $2.5m - $1.5m - $0.75m - $0.15m = $0.10m.
  • And, Total Current Liabilities = $0.10m + $0.15m = $0.25m.

Now, on the basis of above figures we can proceed to the main answer.

1. Company's Total Debt = Long Term Debt + Total Current Liabilities = $0.75m + $0.25m = $1.0m
2. Total liabilities and equity appearing in the Balance Sheet = $2.5m
3. Current Assets = $0.5m
4. Current Liabilities = $0.25m
5. Accounts payable and accruals (or, it can be called as other current liabilities in above working) = $0.10m
6. Net working capital = Current Assets - Current Liabilities = $0.5m - $0.25m = $0.25m
7. Net Operating Working Capital = Current Assets - (Total Current Liabilities - Notes payable) = $0.5m - ($0.25m - $0.15m) = $0.40m