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Chapter 3 Part II Homework Solutions

Note: there are 4 worksheets - one for each problem


ST-2 NET INCOME AND CASH FLOW
Last year Rattner Robotics had the following financials (in $ millions):
Operating income (EBIT)
$5
Depreciation
1
Interest
1
Tax rate
40%
Current assets (year end)
14
Accounts payable
3
Accruals
1
Net plant and equipment
15
Depreciation is only non cash item
$ millions
a. What was the company's net income?
EBIT
Interest
EBT
Taxes
Net Income

0.0

b. What was its net operating working capital (NOWC)?


Current assets
Payables
Accruals
NOWC

d. Plant and equipment - prior year


12
NOWC has remained constant over time.
What is the company's free cash flow (FCF) for the year that just ended?
Free Cash Flow

FCF = EBIT (1 - T)
FCF =
FCF =

Depr.

Capital
- expenditures

e. Rattner has 500,000 common shares outstanding and the common stock amount on the
balance sheet is $5 million. The company has not issued or repurchased common stock
during the year. Last year's balance in retained earnings was $11.2 million and the firm
paid out dividends of $1.2 million during the year. Develop Rattner's end-of-the-year
Statement of Stockholder's Equity.

Change
in
- NOWC

Chapter 3 Part II Homework Solutions

Common Stock

Shares
Balances, beginning of year
Net income
Cash dividends
Addition to retained earnings
Balances, end of year

Retained
Amount Earnings

Total
Stockholders'
Equity

Chapter 3 Part II Homework Solutions

Problem 3-10 STATEMENT OF CASH FLOWS (Be sure to scroll down and do part b)
W.C. Cycling had $55,000 in cash at year end 2012 and $25,000 in cash at year end 2013.
The firm invested in property, plant and equipment totaling $250,000.
Cash flow from financing activities totaled +$170,000.
a. What was the cash flow from operating activities?

Statement of Cash Flows ($ thousands)


Operating Activities
LT Investing Activities
Financial Activities
Net Change in Cash
Cash- beg
Cash- end

b. What was the cash flow from operating activities?


If accruals increased by $25,000, receivables and inventories increased by $100,000,
and depreciation and amortization totaled $10,000, what was the firm's net income?

Problem 3-12
Bailey Corporation's financial statements (dollars and shares are in millions) are provided here.

Bailey Corporation
(in million of dollars)
Balance Sheets as of December 31
Assets
Cash and cash equivalents
Accounts receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and equity
Accounts payable
Notes payable
Accruals
Total current liabilities
Long-term bonds
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Income Statement for Year Ending
Sales
Expenses excl. depr & amort.
EBITDA
Depreciation and amortization
EBIT
Interest expense
EBT
Taxes (40%)
Net Income
Dividends paid

2013
$

$
$

$
$

$
$

2012

14,000 $
30,000
28,125
72,125 $
50,000
122,125 $

13,000
25,000
21,000
59,000
47,000
106,000

10,800
6,700
7,600
25,100
15,000
40,100
50,000
32,025
82,025
122,125

9,000
5,150
6,000
20,150
15,000
35,150
50,000
20,850
70,850
106,000

$
$

$
$

2013
$214,000
170,000
$44,000
5,000
$39,000
1,750
$37,250
14,900
$22,350
$11,175

a. What was the change in Bailey's net operating working capital from 2012 to 2013?
NOWC = Curr. Assets
- Accts. Pay.
Accruals

b. What was Bailey's 2013 free cash flow?


Free Cash Flow
FCF =
EBIT (1 - T)
+ Depr.

Cap Ex

e provided here.

012 to 2013?

NOWC

Chapter 3 Part II Homework Solutions

Problem 3-16
Laiho Industries December 31 Balance Sheets
(in thousands of dollars)
2013

2012

Assets
Cash and cash equivalents

Accounts receivable
Inventories
Total current assets

Net fixed assets


Total assets

102,850 $

89,725

103,365

85,527

38,444

34,982

244,659 $
67,165

210,234
42,436

311,824 $

252,670

30,761 $

23,109

Accruals

30,477

22,656

Notes payable

16,717

14,217

Liabilities and equity


Accounts payable

Total current liabilities

Long-term debt
Total liabilities

Common stock
Retained Earnings
Total common equity
Total liabilities and equity

77,955 $

59,982

76,264

63,914

154,219 $

123,896

100,000

90,000

57,605

38,774

157,605 $

128,774

311,824 $

252,670

a. Sales for 2013 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depr. and
amortization amounted to 11% of net fixed assets, interest was $8,575,000, the corporate tax
rate was 40%, and Laiho pays 40% of its net income in dividends. Given this information,
construct Laihos 2013 income statement.
The input information required for the problem is outlined in the "Key Input Data" section below.
Using this data and the balance sheet above, we constructed the income statement shown below.
KEY INPUT DATA: Laiho Industries
Sales
EBITDA as % of sales
Depr. as a % of fixed assets
Tax rate
Interest expense
Dividend payout ratio

Chapter 3 Part II Homework Solutions

Laiho Industries Income Statement


(in thousands of dollars)
2013
Sales
Op Costs excl. depr & amort.
EBITDA
Depreciation and amortization
EBIT
Interest expense
EBT
Taxes (40%)
Net Income
Common dividends
Addition to retained earnings
b. Construct the statement of stockholders' equity for the year ending December 31, 2013,
and the 2013 statement of cash flows.
Statement of Stockholders' Equity
(in thousands of dollars)

Common Stock
Balances, December 31, 2012
Common stock issue
2013 Net income
Cash dividends
Addition to retained earnings
Balances, December 31, 2013

Retained
Earnings

Total
Stockholders'
Equity

Chapter 3 Part II Homework Solutions

Statement of Cash Flows


(in thousands of dollars)
2013
Operating Activities
Net Income
Depreciation and amortization
Increase in accounts payable
Increase in accruals
Increase in accounts receivable
Increase in inventories
Net cash provided by operating activities
Investing Activities
Additions to property, plant, and equip.
Net cash used in investing activities
Financing Activities
Increase in notes payable
Increase in long-term debt
Increase in common stock
Payment of common dividends
Net cash provided by financing activities
Summary
Net increase/decrease in cash
Cash balance at beg. of the year
Cash balance at the end of the year
c. Calculate the change in net operating working capital and the 2013 free cash flow.

Chapter 3 Part II Homework Solutions

Chapter 3 Part II Homework Solutions

Chapter 3 Part II Homework Solutions