ECON 282 Lecture Notes - Lecture 11: Operating Cash Flow, Cash Flow, Net Income
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14 Nov 2015
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Formulas: project cash flow = project operating cash flow project capital spending change in net working capital, calculating operating cash flow (ocf), the bottom-up approach: Ocf = net income + depreciation = ebit taxes + depreciation: the top-down approach: Ocf = revenue costs and expenses taxes: net working capital = inventory + accounts receivable accounts payable. Week 11: project x has an expected sales of 6,000 units per year at a price of ,000 each. Variable costs will run about per unit. Fixed costs for the project will run ,000 per year. Further, we will need to invest a total of ,250,000 in manufacturing equipment. For simplicity, assume that the equipment has a four-year life and is depreciated to zero on a straight-line basis over that period. In four years, the equipment will be worth about half of what we paid for it. ,150,000 in net working capital at the start.
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Related Questions
Marion has just received the year-end financial statements shown below. Evaluate the state of her company from the perspective of shareholders. What should Marion conclude based on this, and what possible actions can be recommended? | ||||||
Marion's, Inc. | ||||||
Income Statement | 2012 | Cash Flow Statement | ||||
Revenue | $3,906,000 | Balance Forward | $212,500 | |||
Returns, Credits, etc. | ($1,400) | Net Income | $124,480 | |||
Net Sales (Revenue) | $3,904,600 | Depreciation | $75,000 | |||
Direct Costs | Change in Working Capital | ($17,140) | ||||
Labor | ($1,450,000) | Capital Expenditures | ($70,000) | |||
Materials | ($989,000) | Financial Activities | ($75,000) | |||
Cost of Goods Sold (COGS) | ($2,439,000) | Net change in cash | $37,340 | |||
Gross Margin | $1,465,600 | Ending Cash Balance | $249,840 | |||
Selling General and Admin. | ||||||
Marketing | ($400,000) | |||||
Research and Development | ($350,000) | |||||
Administration | ($250,000) | |||||
Other | ($200,000) | |||||
Depreciation | ($75,000) | |||||
S G & A | ($1,275,000) | |||||
Earnings Before Interest and Taxes (EBIT) | $190,600 | |||||
Interest Expense/Income | ($35,000) | |||||
Pre-tax Income | $155,600 | |||||
Income Tax @ 20% | ($31,120) | |||||
Net Income | $124,480 | |||||
Balance Sheets, 2011 | ||||||
Assets | Liabilities | |||||
Current Assets | Current Liabilities | |||||
Cash | $249,840 | Accounts Payable | $125,000 | |||
Accounts receivable | $60,160 | Taxes Payable | $10,000 | |||
Finished Goods Inventory | $40,000 | Total Current Liabilities | $135,000 | |||
Materials Inventory | $85,000 | Long Term Liabilities | ||||
Total Current Assets | $435,000 | Bank Loans @ 6% | $125,000 | |||
Mortgage @ 4.5% | $460,000 | |||||
Long term Assets | Total Long Term Liabilities | $585,000 | ||||
Buildings | $1,050,000 | |||||
Equipment and machines | $80,000 | Capital | Stock | $650,000 | ||
Other | $100,000 | Retained Earnings | $295,000 | |||
Total Fixed Assets | $1,230,000 | Stockholders Equity | $945,000 | |||
Total Assets | $1,665,000 | Total Liabilities and Stockholders equity | $1,665,000 | |||
Current Stock Price | $44.25 | |||||
Current Outstanding Shares | 5,000 |