Problem Session 1
Problem Session 1
FINANCE
Problem Session I
Q1
The Klaven Corporation has operating income (EBIT) of $750,000. The company’s
depreciation expense is $200,000. Klaven is 100 % equity financed, and it faces a
40% tax rate. Assume that the firm has no amortization expense. What are its net
income, its net cash flow, and its operating cash flow?
Q2
Bailey Corporation’s financial statements (dollars and shares are in millions) are
provided here.
Balance Sheets as of December 31
2012 2011
Assets
Cash and equivalents $14,000 $13,000
Accounts receivable 30,000 25,000
Inventories 28,125 21,000
Total current assets $72,125 $59,000
Net plant and equipment 50,000 47,000
Total assets $122,125 $106,000
Liabilities and Equity
Accounts payable $10,800 $9,000
Notes payable 6,700 5,150
Accruals 7,600 6,000
Total current liabilities $25,100 $20,150
Long term bonds 15,000 15,000
Total debt $40,100 $35,150
Common stock (5,000 shares) 50,000 50,000
Retaining earnings 32,025 20,850
Common equity $82,025 $70,850
Total liabilities and equity $122,125 $106,000
Q2
Income Statement for Year Ending December 31, 2012
Sales $214,000
Operating costs excluding depreciation and amortization 170,000
EBITDA $ 44,000
Deprecition & amortization 5,000
EBIT $ 39,000
Interest 1,750
EBT $ 37,250
Taxes (40%) 14,900
Net income $ 22,350
Dividends paid $ 11,175
a. What was net operating working capital for 2011 and 2012?
b. What was Bailey’s 2012 free cash flow?
c. Constuct Bailey’s 2012 statement of stockholders’ equity.
d. What was Bailey’s 2012 EVA? Assume that its weighted average
cost of capital is 10%?
Q3
Complete the balance sheet and sales information using the following
financial data:
Debt–to-asset ratio: 50%
Current ratio: 1.8x
Total assets turnover: 1.5
Days sales outstanding: 36.5 daysa
Gross profit margin on sales: (Sales-Cost of goods sold)/Sales=25%
Inventory turnover ratio: 5x
aCalculation is based on a 365-day year.
Balance Sheet
Cash Accounts payable
Accounts receivable Long-term debt 60,000
Inventories Common stock
Fixed assets Retained earnings 97,500
Total assets $300,000 Total liabilities and equity
Sales Cost of goods sold
Q4
Sales $1,607,500
Cost of goods sold
Materials $717,000
Labor 453,000
Heat, light, and power 68,000
Indirect labor 113,000
Depreciation 41,500 1,392,500
Gross profit $ 215,000
Selling expenses 115,000
General and administrative expenses 30,000
Earnings before interest and taxes (EBIT) $ 70,000
Interest expense 24,500
Earnings before taxes (EBT) $ 45,500
Federal and state income taxes (40%) 18,200
Net income $ 27,300
Q4