31 Dec Prepare a statement o

1. You are evaluating the balance sheet for Goodman’s Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $500,000, accounts receivable = $1,000,000, inventory = $1,500,000, accrued wages and taxes = $510,000, accounts payable = $810,000, and notes payable = $610,000.

Calculate Goodman Bees’ net working capital.

2. The Fitness Studio, Inc.’s, 2015 income statement lists the following income and expenses: EBIT = $536,000, interest expense = $72,000, and net income = $442,000.

Calculate the 2015 taxes reported on the income statement.

3.

Consider a firm with an EBIT of $865,000. The firm finances its assets with $2,650,000 debt (costing 7.9 percent) and 550,000 shares of stock selling at $6.00 per share. To reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 350,000 shares of stock. The firm is in the 30 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $865,000.

Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Negative answer should be indicated by a minus sign. Round your answers to 5 decimal places.)

4.

Oakdale Fashions, Inc., had $255,000 in 2015 taxable income.

Use the tax schedule in Table 2.3 to calculate the company’s 2015 income taxes.

Income taxes $ 82,700

What is the average tax rate? (Round your answer to 2 decimal places.)

5.

Ramakrishnan, Inc., reported 2015 net income of $30 million and depreciation of $2,800,000. The top part of Ramakrishnan, Inc.’s 2015 and 2014 balance sheets is reproduced below (in millions of dollars).

2015

2014

2015

2014

Current assets:

Current liabilities:

Cash and marketable securities

$

35

$

14

Accrued wages and taxes

$

28

$

23

Accounts receivable

85

80

Accounts payable

80

75

Inventory

152

120

Notes payable

75

70

Total

$

272

$

214

Total

$

183

$

168

Calculate the 2015 net cash flow from operating activities for Ramakrishnan, Inc. (Enter your answer in dollars not in millions.)

6.

You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm’s free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $72 million, had a tax rate of 30 percent, and its depreciation expense was $8 million. Fields and Struthers’ gross fixed assets increased by $38 million from 2014 and 2015. The firm’s current assets increased by $34 million and spontaneous current liabilities increased by $19 million.

Calculate Fields and Struthers’ operating cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.)

Calculate Fields and Struthers’ investment in operating capital for 2015. (Enter your answer in millions of dollars.)

Calculate Fields and Struthers’ free cash flow for 2015. (Enter your answer in millions of dollars rounded to 1 decimal place.)

7.

Mr. Husker’s Tuxedos Corp. began the year 2015 with $260 million in retained earnings. The firm earned net income of $35 million in 2015 and paid dividends of $9 million to its preferred stockholders and $16 million to its common stockholders.

What is the year-end 2015 balance in retained earnings for Mr. Husker’s Tuxedos? (Enter your answer in millions of dollars.)

8.

Brenda’s Bar and Grill has total assets of $16.0 million, of which $10.0 million are current assets. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda’s gross plant and equipment has a book value of $15.0 million and other long-term assets have a book value of $300,000.

What is the balance of inventory and the balance of depreciation on Brenda’s Bar and Grill’s balance sheet? (Enter your answers in millions of dollars rounded to 1 decimal place.)

9.

You have been given the following information for Corky’s Bedding Corp.:

a.

Net sales = $11,100,000.

b.

Cost of goods sold = $7,600,000.

c.

Other operating expenses = $120,000.

d.

Addition to retained earnings = $1,040,000.

e.

Dividends paid to preferred and common stockholders = $310,000.

f.

Interest expense = $840,000.

The firm’s tax rate is 40 percent.

Calculate the depreciation expense for Corky’s Bedding Corp.

10.

You have been given the following information for Moore’s HoneyBee Corp.:

a.

Net sales = $44,000,000.

b.

Gross profit = $19,400,000.

c.

Other operating expenses = $3,400,000.

d.

Addition to retained earnings = $5,400,000.

e.

Dividends paid to preferred and common stockholders = $2,100,000.

f.

Depreciation expense = $2,000,000.

The firm’s tax rate is 36 percent.

Calculate the cost of goods sold and the interest expense for Moore’s HoneyBee Corp.

11.

Consider a firm with an EBIT of $1,013,000. The firm finances its assets with $4,760,000 debt (costing 7.3 percent) and 213,000 shares of stock selling at $16.00 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,640,000 by selling additional shares of stock. The firm is in the 30 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,013,000.

Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Negative answer should be indicated by a minus sign. Round your answers to 2 decimal places.)

12.

Consider a firm with an EBIT of $12,500,000. The firm finances its assets with $54,000,000 debt (costing 8 percent) and 12,000,000 shares of stock selling at $6.00 per share. The firm is considering increasing its debt by $27,000,000, using the proceeds to buy back shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $12,500,000.

Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Round your answers to 3 decimal places.)

13.

The Dakota Corporation had a 2015 taxable income of $34,500,000 from operations after all operating costs but before (1) interest charges of $8,700,000; (2) dividends received of $770,000; (3) dividends paid of $5,350,000; and (4) income taxes.

a. Use the tax schedule in Table 2.3 to calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.)

b.

What are Dakota’s average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.)

14.

Use the balance sheet and income statement below :

CLANCY’S DOG BISCUIT CORPORATION
Balance Sheet as of December 31, 2015 and 2014
(in millions of dollars)

Assets

2015

2014

Liabilities and Equity

2015

2014

Current assets:

Current liabilities:

Cash and marketable securities

$

8

$

8

Accrued wages and taxes

$

11

$

10

Accounts receivable

26

21

Accounts payable

20

18

Inventory

34

26

Notes payable

18

16

Total

$

68

$

55

Total

$

49

$

44

Fixed assets:

Long-term debt:

$

33

$

27

Gross plant and equipment

$

91

$

72

Stockholders’ equity:

Less: Depreciation

20

16

Preferred stock (2 million shares)

$

2

$

2

Common stock and paid-in surplus

Net plant and equipment

$

71

$

56

(5 million shares)

11

11

Other long-term assets

19

19

Retained earnings

63

46

Total

$

90

$

75

Total

$

76

$

59

Total assets

$

158

$

130

Total liabilities and equity

$

158

$

130

CLANCY’S DOG BISCUIT CORPORATION
Income Statement for Years Ending December 31, 2015 and 2014
(in millions of dollars)

2015

2014

Net sales

$

90

$

94

Less: Cost of goods sold

45

41

Gross profits

$

45

$

53

Less: Other operating expenses

6

5

Earnings before interest, taxes depreciation,
and amortization (EBITDA)

$

39

$

48

Less: Depreciation

4

4

Earnings before interest and taxes (EBIT)

$

35

$

44

Less: Interest

5

5

Earnings before taxes (EBT)

$

30

$

39

Less: Taxes

9

12

Net income

$

21

$

27

Less: Preferred stock dividends

$

1

$

1

Net income available to common stockholders

$

20

$

26

Less: Common stock dividends

3

3

Addition to retained earnings

$

17

$

23

Per (common) share data:

Earnings per share (EPS)

$

4.00

$

5.20

Dividends per share (DPS)

$

0.60

$

0.60

Book value per share (BVPS)

$

14.80

$

11.40

Market value (price) per share (MVPS)

$

15.45

$

14.80

Prepare a statement of cash flows for Clancy’s Dog Biscuit Corporation. (Enter your answers in millions of dollars. Amounts to be deducted should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required.)

15.

The 2015 income statement for Duffy’s Pest Control shows that depreciation expense was $198 million, EBIT was $506 million, and the tax rate was 35 percent. At the beginning of the year, the balance of gross fixed assets was $1,576 million and net operating working capital was $418 million. At the end of the year, gross fixed assets was $1,824 million. Duffy’s free cash flow for the year was $419 million.

Calculate the end-of-year balance for net operating working capital. (Enter your answer in millions of dollars rounded to 1 decimal place.)