Question

1. During the year 2017, the ABC company had sales of $1,000, cost of goods sold of $400, depreciation of $100, and interest paid of $150. Using a 34% corporate tax rate, and assuming all taxes are paid the year they are due, construct BC’s income statement for 2017. 2. The ABC Company had 100 shares of outstanding common stock at the end of 2017. Total dividends paid for 2017 were $120. Compute earnings per share (EPS) and dividends per share for the year. 3. BC had the following account balances: 2016 2017 Notes Payable $1,200 $1,600 Accounts Payable $2,400 $2,000 Long-Term Debt $3,000 $2,800 Cash $800 $500 Marketable Securities $400 $300 Accounts Receivable $900 $800 Inventory $1,800 $2,000 Net Plant & Equipment $6,000 $8,000 Prepare Balance Sheets for 2016 & 2017. 4. Based on the information from Problem 1, calculate ABC’s operating cash flow for 2017. 5. During 2017, ABC sold $300 in net fixed assets. They also issued $2,400 worth of new stock and used the proceeds to buy new fixed assets. What was the net capital spending for that year? 6. Based on the Balance Sheet above for ABC Company, what was the net working capital in each year? What were the additions to net working capital in 2017? 7. Using the above information, what was BC’s total cash flow from assets in 2017? 8. What was BC’s cash flow to long-term creditors in 2017? 9. Now assume that, in addition to issuing $2,400 in new common shares, ABC also repurchased $611 in common shares. What was the firm’s cash flow to shareholders in 2017?

Answer 1

Answer to first 4 parts of the question: 1) ABC Company 2) EPS = Net income / Number of common shares outstanding; DPS = Dividends paid or declared / Number of common shares outstanding. Income Statement For the Year Ended December 31, 2017 Sales $1,000 $231 Net Income # of common shares outstanding $400 Cost of Goods Sold 100 $600 Earnings Per Share (EPS) 2.31 [$231 / 100 shares] Gross Profit Expenses: $100 Dividends Depreciation Expense $120 # of common shares outstanding Interest Expense $150 100 Total Expenses Dividend Per Share (DPS) 1.20 [$120 / 100 shares] $250 $350 [$600 - $250] Income Before Income-Taxes Less: Taxes (34%) $119 [$350 x 34%] $231 Net Income

ABC Company 3) Balance Sheet December 31, 2016 and 2017 2016 2017 2016 2017 Current Assets: Current Liabilities: Accounts Payable Cash $800 $500 $2,400 $2,000 Notes Payable $400 $300 $1,200 $1,600 Marketable Securities $900 $800 $3,600 $3,600 Total Current Liabilities Accounts Receivable $1,800 $2,000 Inventory Long-Term Liabilities: $3,900 $3,600 $3,000 $2,800 Total Current Assets Long-Term Debt Property, Plant and Equipment: Net Plant & Equipment $6,600 $6,400 Total Liabilities Shareholders' Equity: Shareholders' Equity Total Liabilities & Shareholders' equity $9,900 $6,000 $8,000 $3,300 $5,200 [Balancing figure] $11,600 $9,900 $11,600 Total Assets NOTE: Total Liabilities & Shareholders' Equity should be equal to Total Assets. Therefore, for both years, Total Liabilities and Shareholders' Equity are calculated first which is equal to Total Assets of respective year. And then, Shareholders' Equity for 2016 is calculated as: $9900 - $6600 = $3300; for 2017 is calculated as: $11600 - $6400 = $5200; That is, Shareholders' Equity = Total Assets minus Total Liabilities.

ABC's operating cash flow for 2017 = Net income for 2017 + Depreciation Expense (As depreciation is a non-cash expense, it is added back to net income) 4) $231 [Ref: Requirement-1] Net income for 2017 Add: Depreciation Expense $100 [Given] [$231 + $100] ABC's operating cash flow for 2017 $331