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    Sales Operating Costs Depreciation Outstanding Bonds Interest Rate on Outstanding Bonds Capital Expenditures Investment in Working Capital Tax Rate Sales Operating costs Depreciation EBIT Interest Tax Net Income EBIT = (1 - Tax Rate) Free Cash Flow $746. Inventories Total Current Assets Net Fixed Assets Total Assets Accounts Payable Other Current Liabilities Total Assets Long-term Debt Common Equity Total Liabilities and Equity $105,000 Current ROE (return on equity) 7.50%

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    Sales Operating Costs Depreciation Outstanding Bonds Interest Rate on Outstanding Bonds Capital Expenditures Investment in Working Capital Tax Rate Sales Operating costs Depreciation EBIT Interest Tax Net Income EBIT = (1 - Tax Rate) Free Cash Flow $746. Inventories Total Current Assets Net Fixed Assets Total Assets Accounts Payable Other Current Liabilities Total Assets Long-term Debt Common Equity Total Liabilities and Equity $105,000 Current ROE (return on equity) 7.50%

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    5 views4 pages

    Week 2 Demo Problems

    Uploaded by

    Mona McQuaig
    Sales Operating Costs Depreciation Outstanding Bonds Interest Rate on Outstanding Bonds Capital Expenditures Investment in Working Capital Tax Rate Sales Operating costs Depreciation EBIT Interest Tax Net Income EBIT = (1 - Tax Rate) Free Cash Flow $746. Inventories Total Current Assets Net Fixed Assets Total Assets Accounts Payable Other Current Liabilities Total Assets Long-term Debt Common Equity Total Liabilities and Equity $105,000 Current ROE (return on equity) 7.50%

    Copyright:

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    of 4

    Chapter 2, Problem 5

    $9,250.0
    $5,750.0
    $700.0
    $3,200.0
    5.00%
    $1,250.0
    $300.0
    35.00%
    $9,250.0
    $5,750.0
    $3,500.0
    $700.0
    $2,800.0
    $160.0
    $2,640.0
    $924.00
    $1,716.00

    Sales
    Operating Costs
    Depreciation
    Outstanding Bonds
    Interest Rate on Outstanding Bonds
    Capital Expenditures
    Investment in Working Capital
    Tax Rate
    Sales
    Operating costs
    Depreciation
    EBIT
    Interest
    Tax
    Net Income

    EBIT
    = (1 - Tax Rate)
    NOPAT
    Minus: Capital Expenditures
    Minus: Investment in Work. Cap.

    $2,800.0
    65.00%
    $1,820.0
    $1,250.0
    $300.0
    $270.0

    Add Back Depreciation

    $700.0

    Free Cash Flow

    $970.0

    $746.0 How Much Does Net Income


    Exceed Free Cash Flow

    Chapter 3, Problem 4
    $14,000
    $70,000
    $210,000
    $294,000
    $126,000
    $420,000

    Cash
    Receivables
    Inventories
    Total Current Assets
    Net Fixed Assets
    Total Assets

    $42,000
    $28,000
    $70,000
    $70,000
    $280,000
    $420,000

    Accounts Payable
    Other Current Liabilities
    Total Current Liabilities
    Long-term Debt
    Common Equity
    Total Liabilities & Equity

    $280,000 Sales
    $21,000 Net Income

    Calculate Current Ratio


    4.20
    Calculate New Current Assets if Current Ratio Declines to 2.70
    $189,000
    Amount to Reduce Inventories & Common Equity
    $105,000
    Current ROE (Return on Equity)
    7.50%
    Calculate New ROE (Return on Equity)
    12.00%
    Calculate How Much the ROE Changes
    4.50%

    Chapter 3, Problem 5
    35.00%

    Tax Rate

    8.80%

    Interest Rate on Debt

    25.00%
    $200,000.00
    Plan A
    $301,770.00
    $266,545.00
    $35,225.00
    $4,400.00
    $30,825.00
    $10,788.75
    $20,036.25

    Plan A Percentage Debt


    Total Assets

    Change this % Until Plan B TIE = 4.00


    50.00%

    Tax
    Net Income

    Plan B
    $301,770.00
    $266,545.00
    $35,225.00
    $8,800.00
    $26,425.00
    $9,248.75
    $17,176.25

    13.36%

    Return on Equity

    17.18%

    8.01

    TIE Ratio
    (NI / EBIT)

    4.00

    Difference in ROE

    3.82%

    Sales
    Operating Costs
    EBIT
    Interest on Debt

    Plan B Percentage Debt

    n B TIE = 4.00

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