3-1)
Company’s total debt
Notes Payable
Long Term Debt
Accounts Payable
and Accruals
=
150,000
750,000
100,000
1,000,000
2
Total Liabilities and Equity on Balance Sheet
Notes Payable
150,000
Long Term Debt
750,000
Common Equity
1,500,000
Accounts Payable and Accruals
100,000
2,500,000
3
Balance Of Current Assets on B/S
Current Asset
Total Assets
2,500,000
Less: Plant and Equipment
(2,000,000)
500,000
4
Balance Of Current Liabilities on B/S
Notes Payable
150,000
Accounts Payable and Accruals
100,000
250,000
5
Amount of accounts payable and accruals on B/S
Total Liability
2,500,000
Less=(Notes Payable+Long Term Debt+Common Equity)
(2,400,000)
100,000
6
Net Working Capital of the Firm
Current Assets - Current Liabilities
Current Assets
500,000
Less:Current Liabilities
a. Notes payable
(150,000)
a. Accounts payable and Accruals
(100,000)
250,000
7
Net operating working capital of the firm
Current Operating Assets-Current Operating Liabilities
Current Operating Assets (Cash+A/R+Inventories)
Current Asset
Less:Current Operating Liabilities(A/P + Accrued Expenses)
500,000
(100,000)
400,000
While calulating Net working capital, we consider all the Current assets whereas, for Net
operating Working Capital, we consider only Cash, A/R and Inventories. Same is the cae with
Liabilities. We do not consider Notes Payable and other Liabilities(Except A/P and Accruals)
while calculating Net operating Working Capital.
3-2)
EBIT = 6,000,000
Interest = X
EBT = 6,000,000 – X
Tax= 0.04
Income after tax = 3,000,000
EBT = 3,000,000/ (1-T) = 3,000,000/0.06 = 5,000,000
=> X = 6,000,000 – 5,000,000 = 1,000,000
Interest = $1,000,000
3-3)
EBITDA = $7,500,000
Interest = 2,000,000
Tax = 0.04
Net income = 1,800,000
EBT = 1,800,000/(1-0.04) = 3,000,000
Depreciation + Amortization + Interest + EBT +EBITDA = 7,500,000
= > Depreciation + Amortization = 7,500,000 – 2,000,000 – 3,000,000 = $2,500,000
3-9)
a. It issues $2 million of new common stock
The issuance of common stock will increase cash. B and D decreases cash. C has no direct effect on
cash.
3-12)
A) $25,000-$55,000 = -$30,000 total cash flow for 2008.
Cash flow from investing= -$250,000
Cash flow from financing= $170,000
Cash flow from operating = x
-250,000 + 170,000 + x = -30,000
80,000 + x = -30,000
x= -30,000 - 80,000
x= -$110,000 = cash flow from operating activities
B)
3-13)