FIN 300 Study Guide - Midterm Guide: Operating Cash Flow, Asset Turnover, Net Income
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1.)Company ABC has sales of $1,650,000, cost of goods sold of$600,000, EBIT of $450,000, interest expense of $70,000, and a taxrate of 27%. If the company paid $57,000 in dividends what is theaddition to retained earnings.
2.)At the beginning of the year, a firm had current assets of$121,306 and current liabilities of $124,509. At the end of theyear, the current assets were $122,418 and the current liabilitieswere $103,718. What is the change in net working capital?
3.)
Use the Income Statement and Balance Sheet below to calculatethe companies free cash flow.
Income Statement | 2017 |
Net Sales | 675 |
Cost of goods sold | 210 |
Depreciation | 50 |
EBIT | 415 |
Interest Paid | 15 |
EBT | 400 |
Taxes (30%) | 120 |
Net Income | 280 |
Dividends | 105 |
Addition to Retained Earnings | 175 |
Assets | 2016 | 2017 | Liabilities and Shareholders equity | 2016 | 2017 |
Current Assets | Current Liabilities | ||||
Cash | 100 | 125 | Accounts Payable | 200 | 250 |
Accounts Receivable | 250 | 350 | Notes Payable | 150 | 225 |
Inventory | 400 | 375 | |||
Total Current Assets | 750 | 850 | Total Current Liabilities | 350 | 475 |
Long term debt | 300 | 250 | |||
Fixed Assets | Stockholders equity | ||||
PPE | 1500 | 1700 | Common stock | 300 | 300 |
Accumulated Depreciation | 400 | 450 | Retained earnings | 900 | 1075 |
Net PPE | 1100 | 1250 | Total Shareholderâs Equity | 1200 | 1375 |
Total Assets | 1850 | 2100 | Total Liabilities & Equity | 1850 | 2100 |
4.)A firm has net working capital of $900. Long-term debt is$4,200, total assets are $8,000, and fixed assets are $4,300. Whatis the amount of the total liabilities?
Which of the following individuals have unlimited liability based on their ownership interest?
I. general partner
II. sole proprietor
III. stockholder
IV. limited partner
A. II only
B. I and II only
C. II and IV only
D. I, II, and III only
E. I, II, and IV only
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A company paid $1,300 in dividends and $920 in interest this past year. The common stock paid-in capital account increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?
A. -$210
B. $990
C. $1,610
D. $1,910
E. $2,190
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The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:
A. cash flow from operations.
B. capital expenditures.
C. net working capital.
D. free cash flow.
E. additions to net working capital.
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| A company had the following working capital account values. What effect did the change in net working capital have on the firm's cash flows for the year? |
| Beginning of Year | End of Year | ||||||||
| Cash | $179 | $164 | |||||||
| Accounts receivable | 415 | 480 | |||||||
| Inventory | 987 | 923 | |||||||
| Accounts payable | 562 | 649 | |||||||
A. net use of cash of $73
B. net use of cash of $88
C. net source of cash of $86
D. net source of cash of $101
E. net source of cash of $135
| The 2015 financial statements for Growth Industries are presented below: |
| INCOME STATEMENT, 2015 | |||
| Sales | $ | 370,000 | |
| Costs | 235,000 | ||
| EBIT | $ | 135,000 | |
| Interest expense | 27,000 | ||
| Taxable income | $ | 108,000 | |
| Taxes (at 35%) | 37,800 | ||
| Net income | $ | 70,200 | |
| Dividends | $ 42,120 | ||
| Addition to retained earnings | 28,080 | ||
| BALANCE SHEET, YEAR-END, 2015 | |||||
| Assets | Liabilities | ||||
| Current assets | Current liabilities | ||||
| Cash | $ | 6,000 | Accounts payable | $ | 13,000 |
| Accounts receivable | 11,000 | Total current liabilities | $ | 13,000 | |
| Inventories | 33,000 | Long-term debt | 270,000 | ||
| Total current assets | $ | 50,000 | Stockholdersâ equity | ||
| Net plant and equipment | 310,000 | Common stock plus additional paid-in capital | 15,000 | ||
| Retained earnings | 62,000 | ||||
| Total assets | $ | 360,000 | Total liabilities and stockholdersâ equity | $ | 360,000 |
| Sales and costs in 2016 are projected to be 20% higher than in 2015. Both current assets and accounts payable are projected to rise in proportion to sales. The fixed assets of Growth Industries are operating at only 75% of capacity. Interest expense in 2016 will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .60. |
| What is the required external financing over the next year? |
| Even if sales increase by 20%, the firm still has more than enough fixed assets to meet production. Only working capital will increase. Net working capital of the firm in 2015 was $. The increase in net working capital will be $, which is less than the increase in the retained earnings. Thus required external financing is $. A negative external financing value indicates the firm will generate more cash than it needs to finance the projected growth. This extra cash can be used to reduce debt, repurchase shares, increase cash reserves, or fund future growth. This extra cash was primarily due to the firm's excess production capacity. |