Questions and problems –

Chapter 2
 Questions and problems – Chapter 2
1. Building a Balance Sheet: Predator Pucks, Inc., has current assets of $4,000, net fixed assets of
$22,500, current liabilities of $3,400, and long-term debt of $6,800. What is the value of the
shareholders’ equity account for this firm? How much is net working capital?
2. Building an Income Statement: Mama Roach Exterminators, Inc., has sales of $634,000, costs of
$305,000, depreciation expense of $46,000, interest expense of $29,000, and a tax rate of 35 percent.
What is the net income for this firm?
3. Dividends and Retained Earnings: Suppose the firm in Problem 2 paid out $86,000 in cash dividends.
What is the addition to retained earnings?
4. Per-Share Earnings and Dividends: Suppose the firm in Problem 3 had 30,000 shares of common stock
outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure?
5. Market Values and Book Values: Klingon Widgets, Inc., purchased new
cloaking machinery three years ago for $7 million. The machinery can be
sold to the Romulans today for $3.7 million. Klingon’s current balance
sheet shows net fixed assets of $2.6 million, current liabilities of $1.3
million, and net working capital of $410,000. If all the current assets
were liquidated today, the company would receive $1.8 million cash.
What is the book value of Klingon’s assets today? What is the market
value?
6. Calculating OCF: Prather, Inc., has sales of $14,200, costs of $5,600,
depreciation expense of $1,200, and interest expense of $680. If the tax
rate is 35 percent, what is the operating cash flow, or OCF?
7. Calculating Total Cash Flows: Bedrock Gravel Corp. shows the
following information on its 2007 income statement: sales = $162,000;
costs = $93,000; other expenses = $5,100; depreciation expense =
$8,400; interest expense = $16,500; taxes = $14,820; dividends =
$9,400. In addition, you’re told that the firm issued $7,350 in new
equity during 2007 and redeemed $6,400 in outstanding long-term
debt.