Elizabeth Patrick Assignment 3.1 - Chap.

4 Warm Up Exercises

MBA 504: Financial Management

E4-1. The installed cost of a new computerized controller was %65K. Calculate the depreciation schedule by yr. assuming a recovery period of 5 yrs and using the appropriate MACRS depreciation percentages given in Table 4.2 on page 117? Ans. Statement showing depreciation Cost Depreciation (MACRS)year 1 @ 20% Depreciation (MACRS)year 1 @ 32% Depreciation (MACRS)year 1 @ 19% Depreciation (MACRS)year 1 @ 12% Depreciation (MACRS)year 1 @ 12% Depreciation (MACRS)year 1 @ 5% 65000 13000 20800 12350 7800 7800 3250

E4-2. Classify the following changes in each of the accounts as either an inflow or an outflow of cash. During the year (a) marketable securities increased, (b) land and buildings decreased, (c) accounts payable increased, (d) vehicles decreased, (e) accounts receivable increased, and (f) dividens were paid. Ans. (a) Marketable securities increased (b) Land and buildings decreased (c) Accounts payable increased, (d) Vehicles decreased (e) Accounts receivable increased (f) Dividend were paid. cash outflow cash inflow cash inflow cash inflow cash outflow cash outflow

E4-3. Determine the operating cash flow (OCF) for Kleczka, Inc. based on eth followin

Elizabeth Patrick

MBA 504: Financial Management

Data. (all valuesin thousands $). During the year the firm had sales of $2500, cost of goods sold totaled $1800, operating expenses totaled $300 and depreciation expenses were $200. The firm is in the 35% tax rate bracket. Ans. Sales Cost of goods sold Operating expenses Depreciation Total Tax paid Cash flow $ (in thousands) 2500 -1800 -300 +200 600 -210 390

E4-4. During the year, Xero Inc. experienced an increase in net fixed assets of $300K and had depreciation of $200K. It also experienced an increase in current assets of $150K and an increase in A/P and accruals of $75K. If operating cash flow (OCF) for the year was $700K, calculate the firms free cash flow (FCF) for the year. Ans. Operating cash flow Deprecation Increase in current assets Increase in current liabilities Free cash flow 700 +200 -150 +75 825

E4-5. Rimier Corp. forecasts sales of $650K for 2013. Assume the firm has fixed costs of $250K and variable costs amounting to 35% of sales. Operating expense are estimated to include fixed costs of $28K and a variable portion equal to 7.5% of sales. Interest expenses for the coming year are estimated to be $20K. Estimate the net profits before taxes for 2013. Ans. Statement showing net profit for the year 2013 $ (K) Sales Variable cost Fixed cost 650.0 -227.5 -250.0

Elizabeth Patrick Operating expenses (fixed) Operating expenses (variable) Interest expenses Net profit - 28.0 -48.75 -20.0 75.75

MBA 504: Financial Management