Question

Company A has the following incomplete balance sheet and income statement, and the company's tax rate is 35%. Balance Sheet As of year End (Figures in millions of dollars) 2010 | Liabilities 2009 2010 Assets 2009 150 | Current Liabilities Current Assets 100 60 60 880 | Long-Term Debt Net Fixed Assets 800 800 740 Income Statement, 2010 (Figures in millions of dollars) Revenue 2280 Cost of Goods Sold 1030 Depreciation 360 Interest Expense 240

Answer 1

Answer f.

Addition to Net Working Capital = Net Working Capital, 2010 - Net Working Capital, 2009
Addition to Net Working Capital = (Current Assets, 2010 - Current Liabilities, 2010) - (Current Assets, 2009 - Current Liabilities, 2009)
Addition to Net Working Capital = ($150 - $60) - ($100 - $60)
Addition to Net Working Capital = $50

Answer g.

EBIT = Revenue - Cost of Goods Sold - Depreciation
EBIT = $2,280 - $1,030 - $360
EBIT = $890

EBT = EBIT - Interest Paid
EBT = $890 - $240
EBT = $650

Taxes = EBT * Tax Rate
Taxes = $650 * 35%
Taxes = $227.50

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $890 + $360 - $227.50
Operating Cash Flow = $1,022.50

Net Capital Spending = Net Fixed Assets, 2010 + Depreciation - Net Fixed Assets, 2009
Net Capital Spending = $880 + $360 - $800
Net Capital Spending = $440

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $1,022.50 - $440 - $50
Cash Flow from Assets = $532.50

Answer h.

Net New Long-term Debt = Long-term Debt, 2010 - Long-term Debt, 2009
Net New Long-term Debt = $740 - $800
Net New Long-term Debt = -$60

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $240 - (-$60)
Cash Flow to Creditors = $300

Answer i.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
$532.50 = $300 + Cash Flow to Stockholders
Cash Flow to Stockholders = $232.50