Question

Please, calculate answers for parts 4, 5 and 6.

Cash Flows and Financial Statements at Sunset Boards, Inc. Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and it has a 20 percent tax rate. You are Christina's assistant, and she has asked you to prepare the following: 1. An income statement for 2010 and 2011. 2. A balance sheet for 2010 and 2011. 3. Operating cash flow for each year. 4. Cash flow from assets for 2011. 5. Cash flow to creditors for 2011. 6. Cash flow to stockholders for 2011. Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the com- pany's financial records are not well maintained. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include open- ing another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers. Tad's expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more orga- nized and detailed financial statements than Tad has previ- ously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the fol- lowing information: QUESTIONS 1. How would you describe Sunset Boards' cash flows for 2011? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans? Visit us at www.mhhe.com/rwj Cost of goods sold Cash Depreciation Interest expense Selling and administrative Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity 2010 $ 163,849 23,643 46,255 10,056 32,223 41,786 204,068 321,437 16,753 19,046 103,006 32,255 2011 $ 206,886 35,721 52,282 11,526 42,058 47,325 248,625 391,810 21,732 20,796 116,334 43,381 20,500

Answer 1

Solution ☺ lash flow from assets for 2011 operating cash flow - Net capital apending - changes in net working capital So, we need to calculate operating cash flow, net capital spending and changes in net working capital ( o operating cash flows Earring before Int & Tax + Depreciation - Tax Income statement for 201) Sales $ 391,810 Less: cost of Goody dob, 886 ) Sold 4ws Preit 8५,१३५ Less: Dep. (52,982) Selling & Admin (42,058) Earning before Int 90,584 & Tox (11,526) less! Int . . Taxable Income Less; Tax (2040) 19058 (15814.). S

Income After Taxes= $63,246. Now, operating cash flow= EBITP Depreciation - Tax = $90,584 + $52,282 – $15812 2 $127054 Net capital Spending = Net fixed Asset (2011) - Net fixed Asset (2010) + Depreciation of 2011 = $ 248,625 - $ 204,068 +$52,282 z $ 96,839 changes in working cap.= change in current assets - change in current liabilities Total current Asset of 2010 cosht Accounts Receivable & Inventory z$ 23,643+ 16753732255 2 $72,65) Total current Asset of 2011 = lasht Avents Receivable + Inventory =$35,721721, 732443,38) 12$ 100,834 change in current Assets = $ 100,834 $ 72,65) 2 $28,183

Current liabilities - Accounts payable + Notes Payable for 20107 41,786 + 19,046 = $ 60,832 for 2011 + 47,325 + 20,796:- $68,121 change in current liabilities = $68,121- $60,832 2 $7,289 1. - Changes in working cap a change in current asset- I change in current liab- = $ 28,183 - $7,289 $ 20,894 Now, lash How from Assets= operating cash flowp- Net capital spending- change in Networking cap- = $ 127,054 – $ 96,839 – $20,899 z $9,321 0 Cash How to creditors for 2011 1. Interest Expense - Net New Borrowing = $ 11,526 - [ $ 116,334 - $ 103,006] = $ 11,526 - $13,328 - -$1802

Cash How to stockholders - Dividend paid - Net New Equity Raised - 50 $63,246) -- $20,500 z a $31623 – $20,500 $ 11 123 Cash flow to creditors is $1802 which means that $18028 has been received net from the creditors. We know that, lash flow from Asset - Cash flow to creditors & coon flow to Stockholder $ 93813 - $ 1804 + $ 11,123 $9,32) = $9,321 So in this way we can verify our answer.