Dr. Sudhakar Raju
Financial Statements Analysis
FN6450
ASSIGNMENT 1
1.) Penguin Pucks, Inc., has current assets of $5,000, net fixed assets of $23,000, current
liabilities of $4,300, and long-term debt of $13,000. What is the value of the
shareholders’ equity account for this firm? How much is net working capital?
2.) Papa Roach Exterminators, Inc. has sales of $527,000, costs of $280,000 depreciation
expense of $38,000, interest expense of $15,000, and a tax rate of 35 percent. What is the
net income for this firm?
3.) Suppose the firm in Problem 2 paid out $48,000 in cash dividends. What is the
addition to retained earnings?
4.) Suppose the firm in Problem 3 had 30,000 shares of common stock outstanding.
What is earnings per share (EPS)? What is dividends per share (DPS)?
5.) Klingon Widgets, Inc. purchased new cloaking machinery three years ago for $7
million. The machinery can be sold to the Romulans today for $3.2 million. Klingon’s
current balance sheet shows net fixed assets of $4,000,000; current liabilities of
$2,200,000; and net working capital of $900,000. If all the current assets were liquidated
today, the company would receive $2.8 million in cash. What is the book value of
Klingon’s assets today? What is the market value?
6.) Ranney, Inc., has sales of $13,500, costs of $5,400, 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.) The 2007 balance sheet of Rock ‘N’ Roll Records, Inc., showed current assets of
$1,600 and current liabilities of $940. The 2008 balance sheet showed current assets of
$1,720 and current liabilities of $1,180. What was the company’s 2008 change in net
working capital, or NWC?
8.) The 2007 balance sheet of Anna’ Tennis Shop, Inc., showed long-term debt of $2.8
million, and the 2008 balance sheet showed long-term debt of $3.1 million. The 2008
income statement showed an interest expense of $340,000. What was the firm’s cash
flow to creditors during 2008?
9.) The 2007 balance sheet of Anna’s Tennis Shop, Inc., showed $820,000 in common
stock account and $6.8 million in the additional paid-in surplus account. The 2008
balance sheet showed $855,000 and $7.6 million in the same two accounts, respectively.
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If the company paid out $600,000 in cash dividends during 2008, what was the cash flow
to stockholders for the year?
10.) Given the information for Anna’s Tennis Shop, Inc., in Problems 11 and 12, suppose
you also know that the firm’s net capital spending for 2008 was $760,000, and that the
firm’s net capital spending for 2008 was $760,000, and that the firm reduced its net
working capital investment by $165,000. What was the firm’s 2008 operating cash flow,
or OCF?
11.) Bedrock Gravel Corp. shows the following information on its 2008 income
statement:
Sales
Costs
Other expenses
Depreciation Expense
Interest expense
Taxes
Dividends
$145,000
$ 86,000
$ 4,900
$ 7,000
$ 15,000
$ 12,840
$ 8,700
In addition, you’re told that the firm issued $6,450 in new equity during 2008, and
redeemed $6,500 in outstanding long-term debt.
a.
b.
c.
What is the 2008 operating cash flow?
What is the 2008 cash flow to creditors?
What is the 2008 cash flow to stockholders?
12.) Given the following information for Papa Joe Pizza Co., calculate the depreciation
expense: sales = $29,000; costs = $13,000; addition to retained earnings = $45,000;
dividends paid = $900; interest expense = $1,600; tax rate = 35 percent.
13.) Prepare a 2008 balance sheet for Tim’s Couch Corp. based on the following
information:
Cash
$ 175,000
Patents & copyrights
$ 720,000
Accounts payable
$ 430,000
Accounts receivable
$ 140,000
Tangible net fixed assets
$2,900,000
Inventory
$265,000
Notes payable
$180,000
Accumulated retained earnings
$1,240,000
Long-term debt
$1,430,000
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14.) Clapper’s Clippers, Inc., is obligated to pay its creditors $3,500 during the year.
a. What is the market value of the shareholders’ equity if assets have a market
value of $4,300?
b. What if assets equal $3,200?
15.) During 2008, Raines Umbrella Corp. had sales of $850,000. Cost of goods sold,
administrative and selling expenses, and depreciation expenses were $630,000, $120,000
and $130,000, respectively. In addition, the company has an interest expense of $85,000
and a tax rate of 35 percent. (Ignore any tax loss carry-back or carry-forward provisions.)
a. What is Raines’ net income for 2008?
b. What is its operating cash flow?
c. Explain your results in (a) and (b)?
16.) Cusic Industries had the following operating results for 2008:
Sales
Cost of goods sold
Depreciation expense
Interest expense
Dividends paid
$12,800
$10,400
$1,900
$450
$500
At the beginning of the year, net fixed assets were $9,100, current assets were $3,200,
and current liabilities were $1,800. At the end of the year, net fixed assets were $9,700,
current assets were $3,850, and current liabilities were $2,100. The applicable tax rate
was 34 percent.
a.
b.
c.
d.
What is net income for 2008?
What is the operating cash flow for 2008?
What is the cash flow from assets for 2008? Is this possible? Explain.
If no new debt was issued during the year, what is the cash flow to creditors?
What is the cash flow to stockholders? Explain and interpret the positive and
negative signs of your answers in (a) through (d).
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17.) Consider the following abbreviated financial statements for Parrothead Enterprises:
Parrothead Enterprises – 2007 and 2008 Partial Balance Sheets
Assets
Liabilities and Owner’s Equity
2007
2008
2007
2008
Current
$ 650
$ 705
Current
$ 265
$ 290
Assets
Liabilities
Net
Fixed 2,900
3,400
Long-term
1,500
1,720
Assets
debt
Parrothead Enterprises – 2008 Income Statement
Sales
$8,600
Costs
4,150
Depreciation 800
Interest paid 216
a.
b.
c.
d.
What is owners’ equity for 2007 and 2008?
What is the change in net working capital for 2008?
In 2008, Parrothead Enterprises purchased $1,500 in new fixed assets. How
much in fixed assets did Parrothead Enterprises sell? What is the cash flow
from assets for the year? (The tax rate is 35 percent.)
During 2008, Parrothead Enterprises raised $300 in new long-term debt. How
much long-term debt must Parrothead Enterprises have paid off during the
year? What is the cash flow to creditors?
18.) Draw up an income statement and balance sheet for the company below for 2007 and
2008. Calculate the cash flow to creditors, cash flow to stockholders and cash flow to
assets. Assume that the tax rate is 34 percent.
2007
2008
Sales
$4,018
$4,312
Depreciation
577
578
Cost of goods sold
1,382
1,569
Other expenses
328
274
Interest
269
309
Cash
2,107
2,155
Accounts receivable
2,789
3,142
Short-term notes payable
407
382
Long-term debt
7,056
8,232
Net fixed assets
17,669
18,091
Accounts payable
2,213
2,146
Inventory
4,959
5,096
Dividends
490
539
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