PROBLEM 1 (STATEMENT OF FINANCIAL POSITION) The assets of Cain & Abel Associates consist entirely of current assets and net plant and equipment. The firm has total assets of 2.5 million, and net plant and equipment of 2 million. It has notes payable of 150,000, long-term debt of 750,000, and total common equity of 1.5 million. The firm does have accounts payable and accruals on its statement of financial position. The firm only finances with debt and common equity, so it has no preferred stock on its statement of financial position. Required: a. Total liabilities and equity b. Balance of current assets c. Amount of accounts payable and accruals d. Balance of current liabilities e. Net working capital f. Net operating working capital PROBLEM 2 (STATEMENT OF STOCKHOLDERS’ EQUITY)
In its most recent financial statements,
Harvest Inc. reported 50 million of net income and 810 million of retained earnings. The previous retained earnings were 780 million.
Required: How much dividends were
paid to the shareholders during the year? PROBLEM 3 (INCOME STATEMENT)
Good Shepherd Shop had sales of
700,000 in 2015 and cost of goods sold represented 70 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was 10,000 and interest expense for the year was 8,000. The firm’s tax rate is 30 percent. Required: Compute earnings after taxes. PROBLEM 4 (STATEMENT OF CASH FLOWS) The following information is available for Abraham’s Jewelry and Gift Store: Net Income---------------------------------------------5,000 Depreciation Expense---------------------------------2,500 Increase in deferred tax liabilities---------------------500 Decrease in cash---------------------------------------3,000 Increase in marketable securities--------------------1,000 Decrease in accounts receivable---------------------2,000 Increase in inventories--------------------------------9,000 Decrease in accounts payable------------------------5,000 Increase in accrued liabilities------------------------1,000 Increase in property and equipment---------------14,000 Increase in short-term notes payable--------------19,000 Decrease in long-term notes payable---------------4,000 Required: a. Net cash flow from operating activities b. Net cash flow from investing activities c. Net cash flow from financing activities d. Change in cash PROBLEM 5 (FREE CASH FLOW) You are considering an investment in Kingdom Corporation and want to evaluate the firm’s free cash flow. From the income statement, you see that East Corporation earned an EBIT of 62 million, paid taxes of 17 million, and its depreciation expense was 5 million. Fixed assets increased by 32 million from 2018 to 2019. The firm’s current assets increased by 20 million and current liabilities increased by 12 million. Calculate Kingdom Corporation’s free cash flow for 2019. PROBLEM 6 (ECONOMIC VALUE ADDED) The following year-end data pertain to Adam Corporation: EBIT---------------------------800,000 Current assets---------------800,000 Non-current assets-------3,200,000 Current liabilities-----------400,000 Non-current liabilities---1,000,000 Income tax rate------------30% Cost of capital--------------10% Required: Compute for the Economic Value Added (EVA).