Exam 2: Reviewing Financial Statements

The 2018 income statement for John's Gym shows that depreciation expense is $20 million,EBIT is $80 million,and taxes are $24 million.At the end of the year,the balance of gross fixed assets was $102 million.The increase in net operating working capital during the year was $18 million.John's free cash flow for the year was $41 million.What was the beginning of year balance for gross fixed assets?

Which of the following statements is correct?

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 2017 to 2018.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 2018,respectively in millions?

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

Glo's Glasses balance sheet lists net fixed assets as $20 million.The fixed assets could currently be sold for $25 million.Glo's current balance sheet shows current liabilities of $7 million and net working capital of $3 million.If all the current accounts were liquidated today,the company would receive $9 million cash after paying $7 million in liabilities.What is the book value of Glo's assets today? What is the market value of these assets?

The following is the 2018 income statement for Lamps,Inc. The CEO of Lamps wants the company to earn a net income of $12 million in 2018.Cost of goods sold is expected to be 75 percent of net sales,depreciation expense is not expected to change,interest expense is expected to increase to $4 million,and the firm's tax rate will be 40 percent.What is the net sales needed to produce net income of $12 million?

Jack and Jill Corporation's year-end 2018 balance sheet lists current assets of $250,000,fixed assets of $800,000,current liabilities of $195,000,and long-term debt of $300,000.What is Jack and Jill's total stockholders' equity?

Suppose that in addition to the $5.5 million of taxable income from operations,Emily's Flowers,Inc.received $500,000 of interest on state-issued bonds and $300,000 of dividends on common stock it owns in Amy's Iris Bulbs,Inc.Using the tax schedule in Table 2.3 what is Emily's Flowers' income tax liability? What are Emily's Flowers' average and marginal tax rates on total taxable income?

You have been given the following information for Ross's Rocket Corp.: Net sales = $1,000,000; Gross profit = $400,000; Addition to retained earnings = $60,000; Dividends paid to preferred and common stockholders = $90,000; Depreciation expense = $50,000.The firm's tax rate is 40 percent.What are the cost of goods sold and the interest expense for Ross's Rocket Corp.?

Epic,Inc.'s 2018 income statement lists the following income and expenses: EBIT = $1,000,000,interest expense = $75,000,and taxes = $277,500.Epic has no preferred stock outstanding and 100,000 shares of common stock outstanding.What are its 2018 earnings per share?

You are considering a stock investment in one of two firms (AllDebt,Inc.and AllEquity,Inc.),both of which operate in the same industry and have identical operating income of $600,000.AllDebt,Inc.finances its $1.2 million in assets with $1 million in debt (on which it pays 10 percent interest annually)and $0.2 million in equity.AllEquity,Inc.finances its $1.2 million in assets with no debt and $1.2 million in equity.Both firms pay a tax rate of 30 percent on their taxable income.What are the asset funders' (the debt holders and stockholders)resulting return on assets for the two firms?

Nickolas's Nut Farms,Inc.has net cash flows from operating activities for the last year of $25 million.The income statement shows that net income is $15 million and depreciation expense is $6 million.During the year,the change in inventory on the balance sheet was a decrease of $4 million,change in accrued wages and taxes was a decrease of $1 million and change in accounts payable was a decrease of $1 million.At the beginning of the year the balance of accounts receivable was $5 million.What was the end of year balance for accounts receivable?

Paige's Properties Inc.reported 2018 net income of $5 million and depreciation of $1,500,000.The top part Paige's Properties,Inc.'s 2017 and 2018 balance sheets is listed as follows (in millions of dollars). What is the 2018 net cash flow from operating activities for Paige's Properties,Inc.?

This is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns.

For which of the following would one expect the book value of the asset to differ widely from its market value?

You have been given the following information for Corky's Bedding Corp.: Net sales = $15,250,000; Cost of goods sold = $5,750,000; Addition to retained earnings = $4,000,000; Dividends paid to preferred and common stockholders = $995,000; Interest expense = $1,150,000.The firm's tax rate is 30 percent.Calculate the depreciation expense for Corky's Bedding Corp.

LLV Inc.originally forecasted the following financial data for next year: sales = $1,000,cost of goods sold = $675,and interest expense = $90.The firm believes that COGS will always be 67.5 percent of sales.Due to increased global demand,the firm is now projecting that sales will be 20 percent higher than the original forecast.What is the additional net income (as compared to the original forecast)the firm can expect assuming a 35 percent tax rate?

The AOK Corporation had a 2018 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?

The Carolina Corporation had a 2018 taxable income of $3,000,000 from operations after all operating costs but before (1)interest charges of $500,000, (2)dividends received of $75,000, (3)dividends paid of $1,000,000,and (4)income taxes. Using the tax schedule in Table 2.3,what is Carolina's income tax liability? What are Carolina's average and marginal tax rates on taxable income from operations?

The 2010 income statement for Pete's Pumpkins shows that depreciation expense is $250 million,EBIT is $500 million,EBT is $320 million,and the tax rate is 30 percent.At the beginning of the year,the balance of gross fixed assets was $1,600 million and net operating working capital was $640 million.At the end of the year gross fixed assets was $2,000 million.Pete's free cash flow for the year was $630 million.What is their end of year balance for net operating working capital?