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FIN320

The document provides a detailed financial analysis including a balance sheet, income statements, and stockholders' equity information. Key figures include total debt of $900,000, net income of $71.6 million, and retained earnings of $1,826 million. It also highlights cash availability of $15 million and current liabilities of $620 million due within the next year.

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12 views4 pages

FIN320

The document provides a detailed financial analysis including a balance sheet, income statements, and stockholders' equity information. Key figures include total debt of $900,000, net income of $71.6 million, and retained earnings of $1,826 million. It also highlights cash availability of $15 million and current liabilities of $620 million due within the next year.

Uploaded by

loltromnick
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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3-1 BALANCE SHEET

1. Total Debt: Notes payable + Long-term debt = $150,000 + $750,000 = $900,000.


2. Total Liabilities and Equity: Total assets = Total liabilities + Total equity
o Total assets = $2,500,000.
o Equity (given) = $1,500,000.
o Total liabilities = $2,500,000 - $1,500,000 = $1,000,000.
3. Current Assets Balance: Total assets - Net plant and equipment = $2,500,000 -
$2,000,000 = $500,000.
4. Current Liabilities Balance: Total liabilities - (Notes payable + Long-term debt) =
$1,000,000 - ($150,000 + $750,000) = $100,000.
5. Accounts Payable and Accruals: Total current liabilities (from above) = $100,000.
6. Net Working Capital: Current assets - Current liabilities = $500,000 - $100,000 =
$400,000.
7. Net Operating Working Capital: Current assets - (Current liabilities - Notes payable) =
$500,000 - ($100,000 - $150,000) = $500,000 + $50,000 = $550,000.
8. Difference in Net Working Capital vs. Net Operating Working Capital: Net
operating working capital includes notes payable, while net working capital does not.

3-2 INCOME STATEMENT

1. Interest Expense:
o Net income = $13 million.
o Tax rate = 35%, so the pretax income = Net income / (1 - Tax rate) = $13
million / 0.65 = $20 million.
o EBIT = $20.8 million.
o Interest expense = EBIT - Pretax income = $20.8 million - $20 million = $0.8
million.

3-3 INCOME STATEMENT

1. Depreciation and Amortization:


o EBITDA = $7.5 million.
o Net income = $2.1 million.
o Interest expense = $2.0 million.
o Tax rate = 30%.
o Pretax income = Net income / (1 - Tax rate) = $2.1 million / 0.7 = $3 million.
o Depreciation and amortization = EBITDA - (Interest expense + Pretax income) =
$7.5 million - ($2.0 million + $3 million) = $2.5 million.

3-4 STATEMENT OF STOCKHOLDERS’ EQUITY

1. Dividends Paid:
o Ending retained earnings = $825 million.
o Beginning retained earnings = $784 million.
o Net income = $75 million.
o Dividends paid = Beginning retained earnings + Net income - Ending retained
earnings = $784 million + $75 million - $825 million = $34 million.

3-5 MVA

1. Number of Common Shares Outstanding:


o MVA = Market value of equity - Book value of equity.
o Market value of equity = MVA + Book value of equity = $50 million + $900
million = $950 million.
o Stock price per share = $80.
o Number of common shares outstanding = Market value of equity / Stock price =
$950 million / $80 = 11.875 million shares.

3-10:
o Net Income=$144.7 million−$95.5 million+$22.4 million
Net Income=144.7−95.5+22.4
Net Income=$71.6 million

3-12:
(a)
o Change in Cash=Cash Flow from Operating Activities+Cash Flow from Investing
Activities+Cash Flow from Financing Activities
-Change in cash = Ending cash - Beginning cash
-Change in cash=$11,000−$39,000=−$28,000
Cash Flow from Investing Activities = -\$210,000
Cash Flow from Financing Activities = \$120,000
−$28,000=Cash Flow from Operating Activities−$210,000+$120,000
Cash Flow from Operating Activities=−$28,000+$210,000−$120,000
Cash Flow from Operating Activities=$62,000

Part (b): Net Income


Net Income=Cash Flow from Operating Activities−Increase in Accruals−Increase
in Receivables and Inventories+Depreciation and Amortization
Net Income=$62,000−$15,000−$50,000+$25,000=$22,000

3-14:
(a) Net Operating Working Capital (NOWC) for 2017 and 2018
NOWC=(Accounts Receivable+Inventories)−(Accounts Payable+Accruals)
2017: (30,000+27,000)−(9,000+6,000)=57,000−15,000=42,000
2018: (35,000+33,320)−(10,100+8,000)=68,320−18,100=50,220
(b) Free Cash Flow (FCF) for 2018
FCF=EBIT(1−Tax Rate)+Depreciation−Net Capital Expenditures−ΔNOWC
FCF=(44,000×0.6)+6,000−2,000−8,220
FCF=26,400+6,000−2,000−8,220=22,180
(c) 2018 Statement of Stockholders’ Equity
Ending Equity=Beginning Equity+Net Income−Dividends
86,220=76,950+23,190−13,920

3-16:
(a) Statement of Stockholders’ Equity for December 31, 2018
Ending Equity=Beginning Equity+Net Income−Dividends Paid
Ending Equity=1,860+372−146=2,086 million

Figure 1
Stockholders' Equity (Millions) o Amount

Common Stock o $260

Retained Earnings (Beginning) o $1,600

Net Income o $372

Dividends Paid o ($146)

Retained Earnings (Ending) o $1,826

Total Equity (End of 2018) o $2,086

(b) How much money has been reinvested in the firm over the years?
Money reinvested in the firm is represented by retained earnings.

 Retained Earnings (End of 2018): $1,826 million


So, the company has reinvested $1,826 million over the years.

(c) How large a check could be written without bouncing?

This refers to the cash available, which is simply the "Cash and Equivalents" from the balance
sheet.

 Cash and Equivalents: $15 million

So, the company could write a check up to $15 million without it bouncing.

(d) How much money must be paid to current creditors within the next year?

This refers to total current liabilities, which must be paid within the next year.

 Total Current Liabilities: $620 million

Thus, the company must pay $620 million to current creditors within the next year.

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