Fundamentals of coroprate finance 7th ross westerfield CH02

Chapter •Financial Statements, Taxes, and Cash Flow McGraw-Hill/Irwin Copyright © by The McGraw-Hill Companies, Inc All rights Chapter 02 – Index of Sample Problems • • • • • • • • • Slide # 03 - 10 Slide # 11 - 12 Slide # 13 - 18 Slide # 19 - 20 Slide # 21 - 22 Slide # 23 - 24 Slide # 25 - 26 Slide # 27 - 28 Slide # 29 - 34 Understanding a balance sheet Market value versus book value Understanding an income statement Earnings per share Dividends per share Average tax rate Marginal tax rate Operating cash flow Net capital spending (index continued on next slide) Chapter 02 – Index of Sample Problems • • • • Slide # 35 - 36 Slide # 37 - 38 Slide # 39 - 41 Slide # 43 - 44 Change in net working capital Cash flow from assets Cash flow to creditors Cash flow to stockholders 3: Understanding a balance sheet Answer these questions based on the balance sheet shown on slide # Use 2005 values What is the amount of the current assets? What is the amount of the long-term assets? What is the amount of the current liabilities? What is the amount of the long-term debt? What is the amount of the stockholders’ equity? Answers on slide # 4: Understanding a balance sheet WISDOM, INC Balance Sheets ($ in millions) 2004 Assets Cash 2005 Liabilities and Owners’ Equity $ 199 $ 203 Accounts payable Notes payable Accounts receivable 436 421 Inventory 504 497 1,139 1,121 1,574 1,633 Total Net fixed assets 2004 Total Long-term debt Total Common stock and paid in surplus Retained earnings Total Total assets $2,713 $2,754 Total liabilities and owners’ equity 2005 $ 219 $ 187 193 546 412 733 470 533 882 1,266 690 650 1,141 838 1,831 1,488 $2,713 $2,754 5: Understanding a balance sheet Answers to questions from slide # Current assets for 2005 = $203m + $421m + $497m = $1,121m Long term assets for 2005 = $1,633m Current liabilities for 2005 = $187m + $546m = $733m Long - term debt for 2005 = $533m Stockholders' equity for 2005 = $ 650m + $838m = $1,488m 6: Understanding a balance sheet The Dinmore Company has total assets of $6.4 million, current assets of $2.3 million, current liabilities of $2.5 million and total liabilities of $4.2 million What is the amount of the stockholders’ equity? What is the amount of the net working capital? What is the amount of the long-term assets? What is the amount of the long-term debt? Answers on slides # 7-8 7: Understanding a balance sheet Answers to slide # Stockholders' equity = Total assets - Total liabilities = $6.4m - $4.2m = $2.2m Net working capital = Current assets - Current liabilities = $2.3m - $2.5m = - $0.2m 8: Understanding a balance sheet Answers to slide # Long - term assets = Total assets - Current assets = $6.4m - $2.3m = $4.1m Long - term liabilities = Total liabilities - Current liabilities = $4.2m - $2.5m = $1.7m 9: Understanding a balance sheet Your company has current assets of $250 million, total assets of $395 million and long-term debt of $116 million The net working capital is $19 million What is the amount of the current liabilities? What is the amount of the total equity? Answers on slide # 10 31: Net capital spending Net fixed assets, beginning Less: Depreciation Total Plus: Net capital spending Net fixed assets, ending $503,498 59,200 444,298 23,505 $467,803 32: Net capital spending Your firm has beginning net fixed assets of $678,407 and ending net fixed assets of $402,398 The depreciation expense for the year is $75,380 What is the amount of the net capital spending for the year? 33: Net capital spending Net capital spending = Ending net fixed assets - Beginning net fixed assets + Depreciation = $402,398 - $678,407 + $75,380 = - $200,629 34: Net capital spending Net fixed assets, beginning Less: Depreciation Total Plus: Net capital spending Net fixed assets, ending $678,407 75,380 603,027 -200,629 $402,398 In this case, you had net sales of fixed assets 35: Change in net working capital Given the following information what is the change in net working capital (NWC)? Cash Accounts receivable Inventory Net fixed assets 11,973 payable 1,542 10,200 Beginning $ 903 3,298 6,129 Ending $ 789 3,672 5,032 12,530 Accounts 1, 303 Long-term debt 9,300 36: Change in net working capital Ending NWC = Ending current assets - Ending current liabilities = $789 + $3,672 + $5,032 - $1,303 = $8,190 Beginning NWC = Beginning current assets - Beginnng current liabilities = $903 + $3,298 + $6,129 - $1,542 = $8,788 Change in NWC = Ending NWC - Beginning NWC = $8,190 - $8,788 = -$598 37: Cash flow from assets A firm has operating cash flow of $18,500, change in net working capital of $300 and additions to net capital spending of -$1,200 What is the amount of the cash flow from assets? 38: Cash flow from assets Cash flow from assets = Operating cash flow - Net capital spending - Change in net working capital = $18,500 - (-$1,200) - $300 = $19,400 39: Cash flow to creditors 40: Cash flow to creditors Your firm has long-term debt of $42,900 as of year end Your beginning long-term debt was $38,900 During the year, the company paid a total of $3,500 in interest What is the amount your cash flow to creditors? 41: Cash flow to creditors Cash flow to creditors = Interest paid - Net new borrowing = Interest paid - (Ending long - term debt - Beginning long - term debt) = $3,500 - ($42,900 - $38,900) = -$500 42: Cash flow to stockholders 43: Cash flow to stockholders Your firm has a net income of $136,800 for the year The dividend payout ratio is 50% The balance sheet shows an ending common stock balance of $800,000 and an ending paid in surplus balance of $400,000 The beginning common stock balance is $750,000 and the beginning paid in surplus balance is $350,000 What is the amount of your cash flow to stockholders? 44: Cash flow to stockholders Dividends paid = $136,800 × 50 = $68,400 CFS = Dividends - Net new equity = Dividends - (Common stock + paid in surplus) End - (Common stock + paid in surplus) Begin = $68,400 - ($800,000 + $400,000 - $750,000 - $350,000) = -$31,600 Chapter •End of Chapter McGraw-Hill/Irwin Copyright © by The McGraw-Hill Companies, Inc All rights ... of $6.4 million, current assets of $2.3 million, current liabilities of $2.5 million and total liabilities of $4.2 million What is the amount of the stockholders’ equity? What is the amount of. .. balance sheet of your firm shows current assets of $214,500 which includes cash of $23,600, accounts receivable of $87,500 and inventory of $103,400 Long-term assets have a book value of $487,300... assets of $250 million, total assets of $395 million and long-term debt of $116 million The net working capital is $19 million What is the amount of the current liabilities? What is the amount of