Test bank and solution manual of essentials of corporate finance 9e ross (1)

Solution Manual Sample.pdf IM_Chap002_9e.pdf Chap002_9e.pdf EOC_9th_edition_Chapter_02.pdf EOC_9th_edition_Chapter_02 (1).pdf 01 03 management (modifying the firm’s credit collection policy with its customers) The treasurer’s office and the controller’s office are the two primary organizational groups that report directly to the chief financial officer The controller’s office handles cost and financial accounting, tax management, and management information systems The treasurer’s office i the study of corporate finance is concentrated within the functions of the treasurer’s office equity of the firm (whether it’s publicly elect the directors of the corporation, who in turn appoint the firm’s management This separat exist Management may act in its own or someone else’s best interests, rather than those of the –2 10 stion that illustrates this debate: “A firm has s What should the firm do?” 11 12 13 institutions’ deeper resources and experiences with their own 14 3– 15 The biggest reason that a company would “go dark” is because of the increased audit costs in value It’s desirable for firms to have high returns by investing in illiquid, productive assets It’s up to the firm’s financial management staff to associated with producing those revenues, to be “booked” when the revenue process is essentially necessarily correct; it’s the way accountants have chosen to it it’s a financing cost, not an operating cost – It’s probably not a good sign for an established company, but it would be fairly ordinary for a start 5– 10 $2,030 9,780 $1,640 4,490 5,680 Owners’ equity $11,810 Total liabilities and owners’ equity $11,810 owners’ equity is a plug variable We know that total assets must equal total liabilities and owners’ equity Total liabilities and owners’ equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owners’ equity, the rem Owners’ equity = Total liabilities and owners’ equity – Owners’ equity = $11,810 – 1,640 – 4,490 Owners’ equity = $5,680 – 2,030 – 1,640 390 – 2–6 $634,000 328,000 73,000 $233,000 38,000 $195,000 68,250 $126,750 126,750 – 43,000 83,750 126,750 35,000 43 35,000 $143 78,020 78,020 211 $243 43,000 2.11 43,000 – 100,000) 7– $38,530 12,750 2,550 $23,230 1,850 $21,380 7,483 $13.897 3,230 8,297 – 50 – 7,483 – 2,134,000 – 1,975 484,000 25,000 – – – 685 – 1,305 – 20 – 530 – 1,270 10 – – 102,800 – –$38,200 – 551,000 – 1,410,00 11 in surplus.) Cash flow 148,500 – –$155,500 – – 48 618 – – 332 15% 25% 34% 39% 34% 35% 38% 35% $ 50,000 25,000 25,000 235,000 7,315,000 0 $ 2,601,000 With a marginal tax rate of 34%, the tax on an additional $10,000 would be $3,400 The tax bills on an additional $10,000 are the same because each firm has a marginal tax rate of 34%, despite their different average tax rates Chapter Question 19 Input area: Sales Costs of goods sold Administrative and selling expenses Depreciation expense Interest expense $ $ $ $ $ Tax rate 2,350,000 1,295,000 530,000 420,000 245,000 35% Output area: Income Statement Sales Costs Administrative and selling expenses Depreciation expense EBIT Interest expense EBT Taxes a) Net income $ $ 2,350,000 1,295,000 530,000 420,000 105,000 245,000 (140,000) (140,000) b) Operating cash flow $ 525,000 $ $ c) Net income was negative because of the tax deductibility and interest expense However, the actual cash flow from operations was positive because depreciation is a non-cash expense and interest is a financing, not an operating, expense Chapter Question 20 Input area: From Problem 19: Operating Cash Flow Interest $ $ 525,000 245,000 $ 395,000 0 0 Cash flow from assets Cash flow to stockholders Cash flow to creditors $ 525,000 395,000 130,000 Net new long-term debt $ 115,000 New information: Cash dividend New investment in net fixed income New investment in net working capital New stock issued during year Net capital spending Net new equity Output area: A firm can still pay out dividends if net income is negative; it just has to be sure there is sufficient cash flow to make dividend payments Chapter Question 21 Input area: Sales Cost of goods sold Depreciation expense Interest expense Dividends paid Beginning net fixed assets Beginning current assets Beginning current liabilities Ending net fixed assets Ending current assets Ending current liabilities Tax rate $ $ $ $ $ $ $ $ $ $ $ New debt issued $ 28,476 20,136 3,408 497 739 19,872 3,528 3,110 22,608 4,234 2,981 40% - Output area: Income Statement Sales Costs Depreciation expense EBIT Interest expense EBT Taxes a Net income $ 28,476 20,136 3,408 $ 4,932 497 $ 4,435 1,774 $ 2,661 b Operating cash flow $ 6,566 $ $ 835 6,144 Change in net working capital Net capital spending c Cash flow from assets $ (413) d Cash flow to creditors $ 497 Cash flow to stockholders $ Net new equity $ (910) 1,649 Chapter Question 22 Input area: Sales Costs Depreciation Interest $ $ $ $ 40,664 20,393 3,434 638 Current assets Net fixed assets $ $ 2015 2,718 $ 12,602 $ 2016 New fixed assets purchased Tax rate 2016 New long-term debt $ $ 2016 2,881 13,175 7,160 40% 2,155 Output area: Income Statement Sales Costs Depreciation expense EBIT Interest expense EBT Taxes Net income $ $ $ $ 40,664 20,393 3,434 16,837 638 16,199 6,480 9,719 a) 2015 Total assets 2015 Total liabilities 2015 Owners' equity $ b) 2016 Net working capital 2015 Net working capital Change in net working capital $ $ 1,155 1,544 (389) c) Net capital spending $ 4,007 $ 15,320 8,047 7,273 # # Fixed assets sold $ 3,153 Operating cash flow Cash flow from assets $ $ 13,791 10,173 d) Net new borrowing Cash flow to creditors $ $ 1,146 (508) $ 1,009 Debt retired Current liabilities Long-term debt $ $ 2016 Total assets 2016 Total liabilities 2016 Owners' equity $ $ 2015 1,174 $ 6,873 $ 16,056 9,745 6,311 2016 1,726 8,019 Chapter Question 23 Input area: 2016 Income Statement Sales $ Cost of goods sold Selling & Administrative Depreciation EBIT $ Interest EBT $ Taxes Net income $ Dividends $ Addition to retained earnings $ Cash Accounts receivable Inventory Current assets Net fixed assets Total assets Cash Accounts receivable Inventory Current assets Net fixed assets Total assets 714,978 384,591 157,787 69,038 103,562 24,410 79,152 27,703 51,449 16,200 35,249 Balance sheet as of Dec 31, 2015 $ 16,849 Accounts payable 24,027 Notes payable 17,449 Current liabilities $ 58,325 Long-term debt $ 435,670 Owners' equity $ 493,995 Total liab & equity Balance sheet as of Dec 31, 2016 $ 18,098 Accounts payable 26,690 Notes payable 28,783 Current liabilities $ 73,571 Long-term debt $ 513,980 Owners' equity $ 587,551 Total liab & equity $ $ 12,115 18,237 30,352 $ 173,100 $ 290,543 $ 493,995 $ $ 13,297 20,830 34,127 $ 192,300 $ 361,124 $ 587,551 Output area: Operating cash flow $ 144,897 $ $ 513,980 435,670 69,038 147,348 Change in Net Working Capital Ending NWC $ -Beginning NWC Change in NWC $ 39,444 27,973 11,471 Capital Spending Ending net fixed assets - Beginning net fixed assets + Depreciation Net capital spending Cash Flow from Assets Operating cash flow - Net capital spending -Change in NWC Cash flow from assets Cash Flow to Creditors Interest paid -Net New Borrowing Cash flow to Creditors Cash Flow to Stockholders Dividends paid -Net new equity raised Cash flow to Stockholders $ $ $ $ $ $ 144,897 147,348 11,471 (13,922) 24,410 19,200 5,210 16,200 35,332 (19,132) Chapter Questions 24 Net capital spending = = = = = NFAend - NFAbeg + Depreciation (NFAend - NFAbeg) + (Depreciation + ADbeg) - ADbeg (NFAend - NFAbeg) + ADend - ADbeg (NFAend + ADend) - (NFAbeg + ADbeg) FAend - FAbeg Chapter Questions 25 Input area: 1st Taxable income 2nd Taxable income $ Taxable income - 50,000 50,001 - 75,000 75,001 - 100,000 100,001 - 335,000 335,001 - 10,000,000 10,000,001 - 15,000,000 15,000,001 - 18,333,333 18,333,334 + 335,001 18,333,334 15% 25% 34% 39% 34% 35% 38% 35% Output area: a) The tax bubble causes average tax rates to catch up to marginal rates, thus eliminating the tax advantage of low marginal rates for high income corporations b) Taxes: 15% 25% 34% 39% 34% 35% 38% 35% $ $ Average tax rate = $ = * denotes marginal tax rate 50,000 25,000 25,000 235,000 0 113,900 113,900 335,001 34% $ * 50,000 25,000 25,000 235,000 9,665,000 5,000,000 3,333,334 $ 6,416,667 $ 6,416,667 18,333,334 35% * c) Income 15% 25% 34% 45.75% 34% 35% 38% 35% $ 200,000 $ 50,000 25,000 25,000 100,000 0 0 68,000 $ Taxes = $ $ 200,000 34% 68,000 ... tax management, and management information systems The treasurer’s office i the study of corporate finance is concentrated within the functions of the treasurer’s office equity of the firm (whether... market value of equity (stock price times number of shares) depends on the future growth prospects of the firm and on the market’s estimation of the current value of ALL of the assets of the firm... treasurer’s office and the controller’s office are the two primary organizational groups that report directly to the chief financial officer The controller’s office handles cost and financial