What is the total value of the cash flows today

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Reference no: EM131068775

Introduction to Finance Assignment

1. Company A has the following incomplete balance sheet and income statement, and the company's tax rate is 35%.

Balance Sheet As of year End (Figures in millions of dollars)

Assets

2011

2012

Liabilities

2011

2012

 Current Assets

100

150

 Current Liabilities

80

80

Net Fixed Assets

820

900

Long-Term Debt

800

740

Income Statement, 2012 (Figures in millions of dollars)

Revenue 2280
Cost of Goods Sold 1060
Depreciation 360
Interest Expense 240

a. What does Company A earn before interest and taxes if Company A's expenses only include cost of goods sold, depreciation and interest expenses?

b. What is Company A's net income?

c. What is Company A's investment in fixed assets in 2012?

d. What is the operating cash flow of Company A in 2012?

e. What is the addition to net working capital in 2012?

f. What is the cash flow from assets?

g. What is the cash flow to creditors?

h. What is the cash flow to shareholders?

2. a. Fill in the table using the following information:

The Edwards School of Business has just bought new equipment at a total cost (including installation) of $160,000. The school expects them to last 4 years before they will need to be replaced and expects to sell them for $40,000 after the four years. The equipment is considered Class 10 or 30 percent for CCA purposes.

Year

Beginning UCC

CCA

Ending UCC

1

 

 

 

2

 

 

 

3

 

 

 

4

 

 

   

b. If the school sells them for $40,000 after the four years, will there be a terminal loss, a CCA recapture, or neither? If so, how much will the amount of loss or recapture be?

3.

ABC Company
Financial Statements
Balance Sheet (in thousands)

Assets

2012

Current assets


Cash

$  300

Accounts Receivable

325

Inventory

450

Total 

$1,075

Fixed Assets


Net plant and equipment's

$6,35

Total Assets

$7,425

Liabilities and Owners' Equity


Current liabilities


Accounts payable

$  400

Notes Payable

1,750

Total

$2,150

Long-term debt

$2,350

Owners' equity


Common stock and paid-in surplus

$1,250

Retained Earnings

1,675

Total

$2,925

Total liabilities and owners' equity

$7,425

Income Statement (in thousands)


Sales

$3,800

Cost of goods sold

2,430

Depreciation

340

Earnings before interest and taxes

$1,030

Interest paid

530

Taxable income

$ 500

Taxes (35%

175

Net income

$ 325

Dividends

$    75

Addition to retained earnings

?


a. Based on the financial statements above, calculate the following list of financial ratios. (5 marks)

1.Current ratio
2.Cash ratio
3.Days' sales in inventory
4.Days' sales in receivables
5.Total debt ratio
6.Times interest earned ratio
7.Return on Assets
8.Return on Equity
9.Fixed asset turnover
10.Profit Margin

b. Construct the Du Pont identity for ABC Company.

c. ABC Company has 200,000 shares of common stock outstanding and the market price for a share of stock at the end of 2012 was $26.

i. What are the additions to retained earnings?

ii. What is the price-earnings ratio?

iii. What are the dividends per share?

iv. What is the market-to-book ratio at the end of 2012?

4. Based on the following information for Swine Corp., classify each even as a source or use of cash, by how much and the total change in cash?

Decrease in inventory                 $400
Decrease in accounts payable        160
Increase in notes payable             580
Decrease in accounts receivable    210

5. The most recent financial statements for ABC Inc. are shown here:

Income Statement                                  Balance Sheet

Sales                   $3,400      Current Assets $4,400         Current Liabilities $880
Costs Fixed                          Assets 5,700                      Long-term debt 3,580
Taxable Income    $600                                                  Equity $5,640
Taxes (34%)         204         Total $10,100                      Total $10,100
Net income          $396

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. ABC Inc. maintains a constant 40% dividend payout ratio. Like every other firm in its industry, next year's sales are projected to increase by exactly 20%. What is the external financing needed?

6. What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six years?

7. You are supposed to receive $2,000 five years from now. At an interest rate of 6%, what is that $2,000 worth today?

8. Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?

9. Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is the rate of return on the trust fund?

10. Suppose you are looking at the following possible cash flows (CF): Year 2 CF = $100; Year
3 CF =$200; Year 5 CF = $300; Year 6 CF=$400. The required discount rate is 5%

1) Draw the time line, mark out the time point and cash flows
2) What is the total value of the cash flows today? (keep two decimal points)
3) What is the total value of the cash flows at year 7? (keep two decimal points)

Reference no: EM131068775

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