fin-4001-chapter-2-questions-answers

Chapter 2 Financial Statements, Taxes, and Cash Flow: Practice Problems Practice Problem 1 Man United Inc., has current assets of $5,300, fixed assets of $24,900, current liabilities of $4,600, and long-term debt of $10,300. What is the value of the shareholders’ equity account for this Firm? How much is net working capital? Current Assets Fixed Assets Total Assets Owner’s Equity = $30,200 - 10,300 - 4,600 = $15,300 Net Working Capital = Current Assets - Current Liabilities = $5,300 - 4,600 = $700 Practice Problem 2 Watford Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes? EBIT Interest paid Taxable income Tax (35%) Net Income Dividend Downloaded by Austine Wanjala () lOMoARcPSD| Retained Earning Downloaded by Austine Wanjala () lOMoARcPSD| Chapter 2 Financial Statements, Taxes, and Cash Flow: Practice Problems Practice Problem 3 AstonVilla Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 32 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? Sales Cost Depreciation EBIT Interest paid Taxable income Tax (32%) Net Income Dividend Retained Earning Practice Problem 4 Arsenal co. has sales of $43,800, costs of $22,700, depreciation expense of $2,100, and interest expense of $1,600. If tax rate is 35%, what is the operating cash flows (OCF)? OCF = EBIT + Depreciation - Taxes = $19,000 + 2,100 - 6,090 = $15,010 Downloaded by Austine Wanjala () lOMoARcPSD| Chapter 2 Financial Statements, Taxes, and Cash Flow: Practice Problems Practice Problem 5 WestHam Bakery’s 2020 balance sheet showed net fixed assets of $2.7 million, and the 2015 balance sheet showed net fixed assets of $3.5 million. The company’s 2021 income stamen showed a depreciation expense of $328,000. What was net capital spending for 2021? Net capital spending = NFAend - NFAbeg + Depreciation Net capital spending = $3,500,000 - 2,700,000 + 328,000 Net capital spending = $1,128,000 Practice Problem 6 The 2020 balance sheet of Liverpool, INC., showed current asset of $4,630 and current liabilities of $2,190. The 2021 balance sheet showed current assets of $5,180 and current liabilities of $2,830. What was the company’s 2021 change in net working capital (NWC)? Change in NWC = NWCend - NWCbeg Change in NWC = (CAend - CLend) - (CAbeg - CLbeg) Change in NWC = ($5,180 - 2,830) - ($4,630 - 2,190) Change in NWC = $2,350 - 2,440 = -$90