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BA II Plus 2 . 9 Enter Financial Statements, Cash Flow, and Taxes
Balance sheet Income statement Accounting income vs. cash flow MVA and EVA Federal tax system
The Annual Report Balance sheet – provides a snapshot of a firm’s financial position at one point in time.
Income statement – summarizes a firm’s revenues and expenses over a given period of time.
Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends.
Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.
Balance Sheet: Assets Cash Accounts Receivable Inventories Total Current Assets Gross Fixed Assets Less: Depreciation Net Fixed Assets Total Assets 2012 7,282 632,160 1,287,360 1,926,802 1,202,360 263,160 939,790 2,866,592 2011 57,600 351,200 715,200 1,124,000 491,000 146,200 344,800 1,468,800
000 5.600 200.11 2.960 100.528.960 (130.650.800 2011 3.T) = 0. What was the company's interest expense for the year? [Hint: Divide $3 million by (1 .768 663.000 203.000 519.428 43.034. recently reported net income of $3 million.600 58.000 1.25 40.8 million 2 .672 209.5 million and $1.600 323.000 -1.592 2012 6.866.000 358.468.988 (13.948) 136.432.160 636.] 2. Its operating income Income Statement (EBIT) was $6 million.568 723.Accts payable Notes payable Accruals Total Current Liabilities Long-term debt Common stock Retained earnings Total Equity Total L & E Income statement Sales COGS Other expenses EBITDA Depr.988) 116.012 (266.176) 2011 145.432 460.50 40.592 2.000 136.600 1.000 481.960) (106.768 1. EBIT Interest Exp. Little Books Inc.000 0. of shares EPS DPS Stock price Lease pmts Liabilities and Equity 2012 544. and the company pays a 40 percent tax rate.828 146.784) (160.864. & Amort.432 460.000 100.22 8.88 0.592 492.900 190.640 87.000 2.000 32.6 to find taxable income. Pearson Brothers recently reported an EBITDA of $7. EBT Taxes Net income Other data No.808 489.602 0.328 18.
What were the total dividends paid to shareholders during the most recent year? Did the expansion create additional net operating profits after taxes (NOPAT)? NOPAT = EBIT (1 – Tax rate) NOPAT12 = -$130. reported $50 million of net income and $810 million of retained earnings.160 + $489.832 3 .4) = -$130.832.768 (160. The previous year.160 + $1.257 What effect did the expansion have on net operating working capital? NOWC Non-interest bearing Current Liabilities (Acct pay + Accruals) NOWC12 = ($7.042 + $939.400 What effect did the expansion have on operating capital? Operating capital = NOWC + Net Fixed Assets Operating Capital12 = $893.790 = $1.282 + $632.Income statement of net income. Newhouse Inc.569 NOPAT11 = $114.360) – ($544.6) = -$78.000) 32. The company has $2.042 = - Current Assets (cash + Acct Rec + Inv) NOWC11 = $842. Statement of related earnings In its most recent financial statements.0 million of interest expense and the corporate tax rate is 40 percent.592 3.948(0.948(1 – 0. its balance sheet showed $780 million of retained earnings.600) = $893. What was the company's depreciation and amortization expense? Statement of Retained Earnings (2011) Balance of Retained Earnings 12/31/11 Add: Net Income 2012 Less: Dividends paid Balance of Retained Earnings 12/31/12 $203.176) (11.287.
EVA takes into account the total cost of capital.860 4. It must also provide a return to those who have provided the firm with capital. What are its net income.000. Klaven is 100 percent equity financed.391 OCF11 = $114. The company's Cash flow depreciation expense is $200.900 = $133. Assume that the firm has no amortization expense.569) + $116. The Klaven Corporation has operating income (EBIT) of $750.176) + $116.157 5. and it faces a 40 percent tax rate. recently reported net income of $3.216 NCF11 = $87. What is the company's approximate net cash flow? Assume the firm has no amortization expense. Kendall Comers Inc. OCF12 = NOPAT + Dep = ($78.000. and its operating cash flow? Economic Value Added (EVA) EVA = After-tax Operating Income __ After-tax Capital costs = NOPAT – After-tax Cost of Capital (Operating Capital) EVA Concepts In order to generate positive EVA.257 + $18.000. a firm has to more than just cover operating costs.1 million.Operating Capital11 = $1. The company's Net cash flow depreciation expense was $500. its net cash flow.900 = $106.187.200 What is your assessment of the expansion’s effect on operations? What effect did the expansion have on net cash flow and operating cash flow? NCF12 = NI + Dep = ($160. What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital 4 . which includes the cost of equity.960 = $38.960 + $18.960 = -$43.
The company's after-tax cost of that capital is 11.463 6. What is Bailey's operating cash flow for the year? e.000 EBITDA $ 7.000 Bailey's total operating capital is $20 billion and its after-tax cost of capital is 10 percent.000 Net income $ 1. What is Bailey's net cash flow for the year? c.000 Depreciation and amortization 3.000.500.257 – (0.000 EBT $ 2.was 10% in 2011 and 13% in 2012.200) = $114.13)($1. a.000 Taxes (40%) 1. EVA Kordell Company recently reported $170. What is Bailey's NOPAT for the year? b.000.000 Operating costs excluding depreciation and amortization 7.10)($1.257 .500.569 .837 EVA11 = $114.832.569 – (0. What is Bailey's EVA for the year? Did the expansion increase or decrease MVA? MVA = Market value __ of equity Equity capital supplied 5 .187.500. and the company is in the 40 percent tax bracket.000.000 in operating income (EBIT).000.625 percent.000 Interest 1. Bailey Corporation recently reported the following income statement (dollars Cash flow are in thousands): Sales $14.$118.000.$238. EVA12 = = = = NOPAT – (A-T cost of capital) (Operating Capital) -$78. What is Kordell's EVA? 7.000.000 EBIT $ 4. The company's total operating capital is $800.268 -$316.000.832) -$78.720 = -$4.
= Change in NOWC + Change in Operating Long Term Assets (less depr) Free Cash Flow = NOPAT – Net Investment in Operating Capital Total Operating Assets = NOWC + Oper LT Assets (ex.550. How many shares of the company's stock are currently outstanding? Free Cash Flows Free Cash Flows = OCF – Gross Inv in Operating Capital Gross Investment in Oper Cap = Net Inv in Oper Cap + Depreciation Net Inv in Oper Cap. What was its free cash flow? Federal Income Tax System Corporate and Personal Taxes Both have a progressive structure (the higher the income. Corporations Rates begin at 15% and rise to 35% for corporations with income over $10 million.500 of bonds that carry a 6.25% interest rate. The company's current stock price is $60 per share. Shrives Publishing recently reported $10. the higher the marginal tax rate). and $1. The company had $3. the firm had expenditures on fixed assets and net working capital that totaled $1.500 of operating costs other than depreciation. During the year.50.000 50. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. and its Market Value Added (MVA) is $130 million. and its federal-plus-state income tax rate was 35%.8.750 of sales. Also subject to state tax (around 5%). Taxable Income $0 .000 Marginal Tax Rates 15% 25% 6 . Henderson Industries has $500 million of common equity on its balance sheet. Investment in Plant and Equipment) .250 of depreciation. $5.000 .75.
15. but usually not for individuals (interest on home loans being the exception). and at the capital gains rate if held for more than a year. Dividends received – taxed as ordinary income for individuals (“double taxation”).000.000 . in order to avoid “triple taxation”. This means that dividends received by individuals are taxed twice – legislation may change this.333.000.000 39% 335. Tax Loss Carry-Back and Carry-Forward – since corporate incomes can fluctuate widely.000. Average tax rate: Marginal tax rate: Total taxes paid Total taxable income amount of tax payable on the next dollar earned - Tax treatment of various uses and sources of funds Interest paid – tax deductible for corporations (paid out of pre-tax income). 7 .10.000 . the tax code allows firms to carry losses back to offset profits in previous years or forward to offset profits in the future. Dividends paid – paid out of after-tax income.000.75. Interest earned – usually fully taxable (an exception being interest from a (muni”).335. Capital gains – defined as the profits from the sale of assets not normally transacted in the normal course of business. capital gains for individuals are generally taxed as ordinary income if held for less than a year. To avoid triple taxation.000 34% 100.000 .100.333 38% 18.333. 2. Corporations face somewhat different rules.333 + 35% Taxes Corporations pay taxes at the corporate income tax rate Taxes are paid by individuals on dividends received by them that are paid out from net income. A portion of dividends received by corporations is tax excludable.000 34% 10. dividends received from other corporations are largely exempt from taxation for a corporation Corporate Tax Rate: Average versus Marginal Tax Rates 1.18.000 35% 15.000 .000 .
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