Question

Questions and Problems connect / 1. Building a Balance Sheet Alesha, Inc., has current assets of $4,300, net fixed assets of $24,000, current liabilities of $2,900, and long-term debt of $10,700. What is the value of the shareholders' equity account for this firm? How much is net working capital? FINANCE BASIC 2. Building an Income Statement Gia, Inc., has sales of $473,000, costs of $275,000, depre- ciation expense of $42,000, interest expense of $23,000, and a tax rate of 21 percent. What is the net income for the firm? Suppose the company paid out $25,000 in cash dividends. What is the addition to retained earnings? (Questions 1-10) 3. Market Values and Book Values Klingon Cruisers, Inc., purchased new cloaking machin- ery three years ago for $9.6 million. The machinery can be sold to the Romulans today for $6.4 million. Klingon's current balance sheet shows net fixed assets of $4.9 million, current liabilities of $2.2 million, and net working capital of $850,000. If all the current accounts were liquidated today, the company would receive $2.7 million cash. What is the book value of Klingon's assets today? What is the sum of NWC and market value of fixed assets? 4. Calculating Taxes Terri Simmons is single and had $189,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate her income taxes. What is the average tax rate? What is the marginal tax rate? Calculating OCF Sheaves, Inc., has sales of $22,400, costs of $11,600, depreciation expense of $2,200, and interest expense of $1,370. If the tax rate is 22 percent, what is the operating cash flow, or OCF? 6, Calculating Net Capital Spending Earnhardt Driving School's 2018 balance sheet showed net fixed assets of $1.28 million, and the 2019 balance sheet showed net fixed assets of $1.43 million. The company's 2019 income statement showed a depreciation expense of $146,000. What was the company's net capital spending for 2019?

Answer 1

1) Shareholder's equity = Assets - Liabilities = (4,300 + 24,000) - (10,700 - 2,900) = 14,700

NWC = Current Assets - Current Liabilities = 4,300 - 2,900 = 1,400

2) Net Income = (Sales - Costs - Depreciation - Interest expense) x (1 - tax) = (473,000 - 275,000 - 42,000 - 23,000) x (1 - 21%) = 105,070

Addition to retained earnings = Net Income - Dividends = 105,070 - 25,000 = 80,070

5) OCF = Net Income + Depreciation

Net Income = (Sales - Costs - Depreciation - Interest expense) x (1 - tax) = (22,400 - 11,600 - 2,200 - 1,370) x (1 - 22%) = $5,639.40

OCF = 5,639.40 + 2,200 = $7,839.40