The document contains various financial problems and calculations related to operating cash flow, net capital spending, cash flow to creditors and stockholders, sustainable growth rates, annuities, and break-even EBIT. Each problem provides specific data points and asks for calculations or explanations based on financial principles. The document serves as an exercise in applying financial concepts to real-world scenarios.
The document contains various financial problems and calculations related to operating cash flow, net capital spending, cash flow to creditors and stockholders, sustainable growth rates, annuities, and break-even EBIT. Each problem provides specific data points and asks for calculations or explanations based on financial principles. The document serves as an exercise in applying financial concepts to real-world scenarios.
The document contains various financial problems and calculations related to operating cash flow, net capital spending, cash flow to creditors and stockholders, sustainable growth rates, annuities, and break-even EBIT. Each problem provides specific data points and asks for calculations or explanations based on financial principles. The document serves as an exercise in applying financial concepts to real-world scenarios.
The document contains various financial problems and calculations related to operating cash flow, net capital spending, cash flow to creditors and stockholders, sustainable growth rates, annuities, and break-even EBIT. Each problem provides specific data points and asks for calculations or explanations based on financial principles. The document serves as an exercise in applying financial concepts to real-world scenarios.
5.Calculating OCF Ranney, Inc., has sales of $18,700, costs of $10,300,
depreciation expense of $1,900, and interest expense of $1,250. If the tax rate is 40 percent, what is the operating cash flow, or OCF?
6. Calculating Net Capital Spending Gordon Driving School’s 2011
balance sheet showed net fixed assets of $1.42 million, and the 2012 balance sheet showed net fixed assets of $1.69 million. The company’s 2012 income statement showed a depreciation expense of $145,000. What was Gordon’s net capital spending for 2012?
8. Cash Flow to Creditors The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed long-term debt of $1.45 million, and the 2012 balance sheet showed long term debt of $1.52 million. The 2012 income statement showed an interest expense of $127,000. What was the firm’s cash flow to creditors during 2012? 9. Cash Flow to Stockholders The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed $490,000 in the common stock account and $3.4 million in the additional paid-in surplus account. The 2012 balance sheet showed $525,000 and $3.7 million in the same two accounts, respectively. If the company paid out $275,000 in cash dividends during 2012, what was the cash flow to stockholders for the year?
14. Calculating Total Cash Flows Schwert Corp. shows the following information on its 2012 income statement: sales 5 $185,000; costs 5 $98,000; other expenses 5 $6,700; depreciation expense 5 $16,500; interest expense 5 $9,000; taxes 5 $19,180; dividends 5 $9,500. In addition, you’re told that the firm issued $7,550 in new equity during 2012 and redeemed $7,100 in outstanding long-term debt. a. What is the 2012 operating cash flow? b. What is the 2012 cash flow to creditors? c. What is the 2012 cash flow to stockholders? d. If net fixed assets increased by $26,100 during the year, what was the addition to net working capital (NWC)? 20. Calculating Cash Flows Cusic Industries had the following operating results for 2012: sales 5 $19,900; cost of goods sold 5 $14,200; depreciation expense 5 $2,700; interest expense 5 $670; dividends paid 5 $650. At the beginning of the year, net fixed assets were $15,340, current assets were $4,420, and current liabilities were $2,470. At the end of the year, net fixed assets were $16,770, current assets were $5,135, and current liabilities were $2,535. The tax rate for 2012 was 40 percent. a. What is net income for 2012? b. What is the operating cash flow for 2012? c. What is the cash flow from assets for 2012? Is this possible? Explain. d. If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to stockholders? Explain and interpret the positive and negative signs of your answers in (a) through (d). Chap 3: 8,10,13,15 8. 10. Sustainable Growth Rate The Steiben Company has an ROE of 13.1 percent and a payout ratio of 40 percent. a. What is the company’s sustainable growth rate? b. Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not? c. How can the company increase its sustainable growth rate? 13. a. Using the equation from the chapter, calculate the external funds needed for next year. b. Construct the firm’s pro forma balance sheet for next year and confirm the external funds needed that you calculated in part (a). c. Calculate the sustainable growth rate for the company. d. Can Optical Scam eliminate the need for external funds by changing its dividend policy? What other options are available to the company to meet its growth objectives? 15. Ratios and Fixed Assets The Le Bleu Company has a ratio of long-term debt to total assets of .35 and a current ratio of 1.25. Current liabilities are $950, sales are $5,780, profit margin is 9.4 percent, and ROE is 18.2 percent. What is the amount of the firm’s net fixed assets? Chap 4: 15,23,25,30 15. 23. Calculating Annuities You are planning to save for retirement over the next 30 years. To do this, you will invest $800 a month in a stock account and $350 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with an 8 percent return. How much can you withdraw each month from your account assuming a 25-year withdrawal period? 25. Calculating Rates of Return You’re trying to choose between two different investments, both of which have up-front costs of $65,000. Investment G returns $125,000 in six years. Investment H returns $185,000 in 10 years. Which of these investments has the higher return?
30. Balloon Payments Audrey Sanborn has just arranged to purchase a
$550,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 6.1 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 years. Her first payment will be due one month from now. However, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of Year 8. There were no other transaction costs or finance charges. How much will Audrey’s balloon payment be in eight years? Chap 16: 4,18,19,25 4. Break-Even EBIT Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Rolston would have 265,000 shares of stock outstanding. Under Plan II, there would be 185,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes. a. If EBIT is $750,000, which plan will result in the higher EPS? b. If EBIT is $1,500,000, which plan will result in the higher EPS? c. What is the break-even EBIT? 18. Firm Value Cavo Corporation expects an EBIT of $19,750 every year forever. The company currently has no debt, and its cost of equity is 15 percent. a. What is the current value of the company? b. Suppose the company can borrow at 10 percent. If the corporate tax rate is 35 percent, what will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? What if it takes on debt equal to 100 percent of its unlevered value? c. What will the value of the firm be if the company takes on debt equal to 50 per cent of its levered value? What if the company takes on debt equal to 100 percent of its levered value? 19. MM Proposition I with Taxes The Maxwell Company is financed entirely with equity. The company is considering a loan of $1.8 million. The loan will be repaid in equal installments over the next two years, and it has an interest rate of 8 percent. The company’s tax rate is 35 percent. According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? 25. MM with Taxes Williamson, Inc., has a debt–equity ratio of 2.5. The firm’s weighted average cost of capital is 10 percent, and its pretax cost of debt is 6 percent. Williamson is subject to a corporate tax rate of 35 percent. a. What is Williamson’s cost of equity capital? b. What is Williamson’s unlevered cost of equity capital? c. What would Williamson’s weighted average cost of capital be if the firm’s debt equity ratio were .75? What if it were 1.5? Chap 19: 4,11,15 4. Dividend Chronology On Tuesday, December 8, Hometown Power Co.’s board of directors declares a dividend of 75 cents per share payable on Wednesday, January 17, to shareholders of record as of Wednesday, January 3. When is the ex-dividend date? If a shareholder buys stock before that date, who gets the dividends on those shares—the buyer or the seller?
11. Ex-Dividend Stock Prices How do you think this tax law change affects ex-dividend stock prices? 15. Dividends and Income Preference The desire for current income is not a valid explanation of preference for high current dividend policy because investors can always create homemade dividends by selling a portion of their stocks. Is this statement true or false? Why?
