Exam 2: Reviewing Financial Statements

Free Cash Flow You are considering an investment in Crew Cut,Inc.and want to evaluate the firm's free cash flow.From the income statement,you see that Crew Cut earned an EBIT of $23 million,paid taxes of $4 million,and its depreciation expense was $8 million.Crew Cut's gross fixed assets increased by $10 million from 2007 to 2008.The firm's current assets increased by $6 million and spontaneous current liabilities increased by $4 million.What is Crew Cut's operating cash flow,investment in operating capital and free cash flow for 2013,respectively in millions?

Market Value versus Book Value Rupert's Rims balance sheet lists net fixed assets as $15 million.The fixed assets could currently be sold for $17 million.Rupert's current balance sheet shows current liabilities of $5 million and net working capital of $3 million.If all the current accounts were liquidated today,the company would receive $6 million cash after paying $5 million in liabilities.What is the book value of Rupert's assets today? What is the market value of these assets?

Ramakrishnan Inc.reported 2013 net income of $20 million and depreciation of $1,500,000.The top part of Ramakrishnan,Inc.'s 2012 and 2013 balance sheets is listed as follows (in millions of dollars). Calculate the 2013 net cash flow from operating activities for Ramakrishnan,Inc.

On which of the four major financial statements would you find the common stock and paid-in surplus?

Free Cash Flow You are considering an investment in Cruise,Inc.and want to evaluate the firm's free cash flow.From the income statement,you see that Cruise earned an EBIT of $202 million,paid taxes of $51 million,and its depreciation expense was $75 million.Cruise's gross fixed assets increased by $70 million from 2012 to 2013.The firm's current assets decreased by $10 million and spontaneous current liabilities increased by $6 million.What is Cruise's operating cash flow,investment in operating capital,and free cash flow for 2013,respectively,in millions?

Which of the following is an example of a capital structure?

Income Statement Consider a firm with an EBIT of $500,000.The firm finances its assets with $2,000,000 debt (costing 6 percent)and 50,000 shares of stock selling at $20.00 per share.To reduce the firm's risk associated with this financial leverage,the firm is considering reducing its debt by $1,000,000 by selling an additional 50,000 shares of stock.The firm is in the 40 percent tax bracket.The change in capital structure will have no effect on the operations of the firm.Thus,EBIT will remain $500,000.What is the change in the firm's EPS from this change in capital structure?

Statement of Retained Earnings Soccer Starz,Inc.started the year with a balance of retained earnings of $25 million and ended the year with retained earnings of $32 million.The company paid dividends of $2 million to the preferred stock holders and $6 million to common stock holders.What was Soccer Starz's net income for the year?

The 2011 income statement for Duffy's Pest Control shows that depreciation expense is $180 million,EBIT is $420 million,EBT is $240 million,and the tax rate is 30 percent.At the beginning of the year,the balance of gross fixed assets was $1,500 million and net operating working capital was $500 million.At the end of the year gross fixed assets was $1,803 million.Duffy's free cash flow for the year was $425 million.Calculate the end of year balance for net operating working capital.

Income Statement You have been given the following information for Halle's Holiday Store Corp.for the year 2013: Net sales = $50,000,000; Cost of goods sold = $35,000,000; Addition to retained earnings = $2,000,000; Dividends paid to preferred and common stockholders = $3,000,000; Interest expense = $3,000,000. The firm's tax rate is 30 percent. In 2014,net sales are expected to increase by $5 million, Cost of goods sold is expected to be 65 percent of net sales, Expensed depreciation is expected to be the same as in 2013, Interest expense is expected to be $2,500,000, The tax rate is expected to be 30 percent of EBT,and Dividends paid to preferred and common stockholders will not change. What is the addition to retained earnings expected in 2014?

All of the following would be a result of changing to the MACRS method of depreciation EXCEPT:

Statement of Cash Flows Use the following balance sheet and income statement to construct a statement of cash flows for Betty's Bakery Corp.

Statement of Cash Flows Full Moon Productions Inc.has net cash flow from financing activities for the last year of $105 million.The company paid $15 million in dividends last year.During the year,the change in notes payable on the balance sheet was an increase of $40 million,and change in common and preferred stock was an increase of $50 million.The end of year balance for long-term debt was $50 million.What was their beginning of year balance for long-term debt?

Corporate Taxes The AOK Corporation had a 2013 taxable income of $2,200,000 from operations after all operating costs but before (1)interest charges of $90,000, (2)dividends received of $750,000, (3)dividends paid of $80,000,and (4)income taxes. Using the tax schedule in Table 2.3,what is AOK's income tax liability? What are AOK's average and marginal tax rates on taxable income from operations?

Balance Sheet Ted's Taco Shop has total assets of $5 million.Forty percent of these assets are financed with debt of which $400,000 is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $1 million.Using this information what is the balance for long-term debt and retained earnings on Ted's Taco Shop's balance sheet?

Statement of Cash Flows Zoe's Dog Biscuits,Inc.has net cash flows from operating activities for the last year of $226 million.The income statement shows that net income is $150 million and depreciation expense is $85 million.During the year,the change in inventory on the balance sheet was an increase of $14 million,change in accrued wages and taxes was an increase of $15 million and change in accounts payable was an increase of $10 million.At the beginning of the year the balance of accounts receivable was $45 million.What was the end of year balance for accounts receivable?

Corporate Taxes Suppose that in addition to the $300,000 of taxable income from operations,Liam's Burgers,Inc.received $25,000 of interest on state-issued bonds and $50,000 of dividends on common stock it owns in Sodas,Inc. Using the tax schedule in Table 2.3 what is Liam's income tax liability? What are Liam's average and marginal tax rates on total taxable income?

Balance Sheet Hair Etc.has total assets of $15 million.Twenty percent of these assets are financed with debt of which $1 million is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million.Using this information what is the balance for long-term debt and retained earnings on Hair Etc.'s balance sheet?

Free Cash Flow The 2013 income statement for Lou's Shoes shows that depreciation expense is $2 million,EBIT is $5 million,EBT is $3 million,and the tax rate is 40 percent.At the beginning of the year,the balance of gross fixed assets was $16 million and net operating working capital was $6 million.At the end of the year gross fixed assets was $20 million.Lou's free cash flow for the year was $4 million.What is their end of year balance for net operating working capital?

On which of the four major financial statements would you find net plant and equipment?