1. Chapter 2 Financial Statements, Taxes, and Cash Flow Copyright © 2012 McGraw-Hill Education. All rights reserved.

2. Problems B/SI/S 2008200920082009 Cash46003800A/P1620017100NS61600 A/R102009700LTD3600033400Costs48900 Invent.1890020300CS1400020000Dep.7800 NFA4140042100RE89005400EBIT4900 Int.2500 TA7510075900TL&E7510075900EBT2400 Taxes800 N/I1600

3. a) Find: 1.The change in NWC 2.NCS for 2009 3.Total amount of SE for 2009 4.The earnings per share for 2009 if the par value per share is $1 5.Dividends paid out to shareholders during 2009 6. OCF 7. CFFA

4. b) A firm has $2,100 in net income, a tax rate of 35 percent, and interest expense of $700. What is EBIT?

5. c) Suppose our corporation has a taxable income of $200000. What is the tax bill? Given the following corporate tax brackets: Taxable IncomeTax rate 0- 5000015% 50001- 7500025 75001- 10000034 100001- 33500039 335001- 1000000034 10000001- 1500000035 15000001- 1833333338 18333334+35

6. d) Given the following information: Interest paid= $70 LTD 2008 = $408, LTD 2009 = $454 Dividends paid = $103 Common stock & paid-in surplus 2008 = $600 Common stock & paid-in surplus 2009 = $640 Find the cash flow to creditors & the cash flow to stockholders.

7. Answer: 1.Change in NWC = ending NWC (2009) – beginning NWC (2008) = [(3800+9700+20300)-17100] - [(4600+10200+18900)-16200] = -800

8. 2. NCS = ending NFA(2009) - beginning NFA(2008) + depreciation = 42100 – 41400 + 7800 = 8500

9. 3. SE for 2009 = common stock + RE = 20000 + 5400 = 25400 4. Earnings per share for 2009 = net income / no. of shares = 1600 / 20000 = 0.08

10. 5. Dividends paid out to shareholders during 2009 = net income - the change in retained earnings = 1600 – (5400-8900) = 5100

11. 6. OCF = EBIT + depreciation – taxes = 4900 + 7800 – 800 = = 11900 7.CFFA = OCF – NCS – changes in NWC = 11900 -8500 – (-800) = = 4200

12. b) Net income = EBT (EBIT – Interest ) - T EBT = (net income*100) / (100 - tax rate) = (2100*100)/65 = 3230.7 EBIT = EBT + Interest = 3230.7 + 700 = 3930.7 ~ 3931

13. c) 0.15 * 50000 = 7500 0.25 (75000-50000) =6250 0.34(100000-75000)= 8500 0.39 (200000-100000) 39000 Therefore, the total tax bill is $ 61250 The average tax rate = 61250/200000 = 30.625% The marginal rate = 39%

14. d) Cash flow to creditors = interest paid – (net new borrowing) = 70 – (454 – 408 = 46) = 24 Cash flow to stockholders = dividends paid – (net new equity raised) = 103 – (640-600=40) = 63