ADMS 2510 Study Guide - Cash Flow, Net Income, Quick Ratio
ADMS 2510 Full Course Notes
Document Summary
Get access
Related Documents
Related Questions
Question 1:
Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below.
| Balance Sheets: | |||
| 2013 | 2012 | ||
| Cash and equivalents | $70 | $55 | |
| Accounts receivable | 275 | 300 | |
| Inventories | 375 | 350 | |
| Total current assets | $720 | $705 | |
| Net plant and equipment | 2,000 | 1,490 | |
| Total assets | $2,720 | $2,195 | |
| Accounts payable | $150 | $85 | |
| Accruals | 75 | 50 | |
| Notes payable | 120 | 145 | |
| Total current liabilities | $345 | $280 | |
| Long-term debt | 450 | 290 | |
| Common stock | 1,225 | 1,225 | |
| Retained earnings | 700 | 400 | |
| Total liabilities and equity | $2,720 | $2,195 | |
| Income Statements: | |||
| 2013 | 2012 | ||
| Sales | $2,000 | $1,500 | |
| Operating costs excluding depreciation | 1,250 | 1,000 | |
| EBITDA | $750 | $500 | |
| Depreciation and amortization | 100 | 75 | |
| EBIT | $650 | $425 | |
| Interest | 62 | 45 | |
| EBT | $588 | $380 | |
| Taxes (40%) | 235 | 152 | |
| Net income | $353 | $228 | |
| Dividends paid | $53 | $48 | |
| Addition to retained earnings | $300 | $180 | |
| Shares outstanding | 100 | 100 | |
| Price | $25.00 | $22.50 | |
| WACC | 10.00% |
| |
The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash.
What is Rosnan's 2013 net operating working capital (NOWC)?
What is Rosnan's 2013 net working capital (NWC)?
Question 2:
| Balance Sheet The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.8 million and net plant and equipment equals $2.3 million. It has notes payable of $145,000, long-term debt of $754,000, and total common equity of $1.55 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet. Write out your answers completely. For example, 25 million should be entered as 25,000,000. What is the company's total debt? $ What is the amount of total liabilities and equity that appears on the firm's balance sheet? $ What is the balance of current assets on the firm's balance sheet? $ What is the balance of current liabilities on the firm's balance sheet? $ What is the amount of accounts payable and accruals on its balance sheet? [Hint: Consider this as a single line item on the firm's balance sheet.] $ What is the firm's net working capital? $ What is the firm's net operating working capital? $ What is the monetary difference between your answers to part f and g? |
| Rockyford Company must replace some machinery that has zero book value and a current market value of $1,600. One possibility is to invest in new machinery costing $41,000. This new machinery would produce estimated annual pretax cash operating savings of $16,400. Assume the new machine will have a useful life of four years and depreciation of $10,250 each year for book and tax purposes. It will have no salvage value at the end of four years. The investment in this new machinery would require an additional $2,300 investment of net working capital. (Assume that when the old machine was purchased the incremental net working capital required at the time was $0.) |
| If Rockyford accepts this investment proposal, the disposal of the old machinery and the investment in the new one will occur on December 31 of this year. The cash flows from the investment will occur during the next four calendar years. |
| Rockyford is subject to a 40% income-tax rate for all ordinary income and capital gains and has a 11% weighted-average after-tax cost of capital. All operating and tax cash flows are assumed to occur at year-end. (For Parts 2 and 3, use the relevant table from Appendix CâTable 1 or Table 2.) |
| Required: |
| 1. | Determine the after-tax cash flow arising from disposing of the old machinery. |
| 2. | Determine the present value of the after-tax cash flows for the next four years attributable to the cash operating savings. (Round your answer to the nearest whole dollar amount.) |
| 3. | Determine the present value of the tax shield effect of depreciation for year 1. (Round your answer to the nearest whole dollar amount.) |
| 4. | Which one of the following is the proper treatment for the additional $2,300 of net working capital required in the current year? | ||||||||||
|
I need help with this assignment and with filling in the blanks
ABC CORP
BALANCE SHEET
December 31, 2010
Cash $ 50
Marketable Securities 0
Accounts Receivables 1,000
Inventory 70
Fixed Assets ( net ) 2,000
Total Assets = 3,120
=====
Accounts Payable $ 1,170
Notes Payable 0
Retained earnings ?
Common Stock 1,400
Total of Both Liabilities & Equity =====
For the year ended 12/31/10 ABC CORP generated Sales of $6,000 and Net Income of $60. The net profit margin this year is considered normal by ABC CORP. Cost of Goods Sold was $4,200 in 2010. Cost of Goods Sold consistently averages seventy per cent of Sales, and will continue to do so in the future. Depreciation Expense was $500 in 2010. No Depreciation Expense was, or ever will, be included in Cost of Goods Sold. Fixed Operating Costs, excluding Depreciation Expense, were equal to $1,200 for 2010. These Fixed Operating Costs included all utilities, all insurance, all rent, all property taxes, and all labor charges. Fixed Operating Costs (other than depreciation expense) are paid for immediately, as they are incurred. Fixed Operating Costs were spread evenly throughout the year 2010. With regard to the size and timing of these costs, it is anticipated that the experience of 2010 will be repeated in 2011. Therefore, we anticipate cash payments associated with Fixed Operating Costs to equal $100 per month in 2011. Because of losses in recent years at ABC Corp and the loss carry forward provisions of the tax code there were no income taxes paid in 2010, and it is anticipated in 2011 that no income tax payments will be made.
Interest paid in 2010 was $40 and dividends paid in that same year were $60 Interest payments are made monthly and dividends are paid at the end of every quarter. The next dividend payment is scheduled for March 2011. The dividend payout ratio in 2010 is considered normal for ABC CORP. The annual interest rate for bank borrowing is six percent per year (one-half of one per cent per month). Interest paid in the current month is based on the previous monthâs balance in Notes Payable.
The target cash balance for the end of any current month is equal to ten percent of next monthâs sales.
Target ending inventory at the end of any current month is equal to twenty percent of estimated cost of goods sold for the next month. All purchases of inventory are paid for in the month following purchase. The entire balance of Accounts Payable, at any given point in time, represents the purchase of inventory which has not yet been paid for. One-half of all sales are collected in the month of sale, the remainder in the following Month. The sales forecast for the first four months of 2011 is
January $ 500
February 400
March 1,600
April 1,000
Sales for October, November and December of the year 2010 were $1,000 $1,000 and $2,000, respectively.
It is the policy of the company to repay bank borrowing as soon as possible; If money is not needed for this purpose, then investments of marketable securities are made. Marketable Securities should be liquidated to satisfy any subsequent need for cash flow before any new bank borrowing is done. The annual yield on marketable securities is three per cent (one-quarter of one percent per month). Interest payments to the firm are based on the previous monthâs balance in Marketable Securities.
On the next two pages, you will find a partially completed Cash Budget. Some numbers are filled in for your convenience. For only the month of January 2011, you are to fill in missing amounts in this Cash Budget. When you answer to this requirement remember to write zero if you mean zero because a blank will not be interpreted as zero.
| The Cash Budget | |||
| Nov 10 | Dec 10 | Jan 11 | |
| Sales | 1,000 | 2,000 | 500 |
| Cost of goods sold | 700 | 1400 | 350 |
| Beginning Inventory | 140 | 280 | 70 |
| Ending Inventory | 280 | 70 | 56 |
| Purchases | 840 | 1,190 | 336 |
| Cash Collections: | X | X | |
| Collected in month of sale | X | X | |
| Collected month after sale | X | X | |
| Other Inflow: | X | X | |
| Interest Income Payments | X | X | 0 |
| TOTAL INFLOWS | X | X | |
| Nov 10 | Dec 10 | Jan 11 | |
| Outflows: | |||
| Payment for Purchases | X | X | |
| Interest Payments | X | X | 0 |
| Overhead Payments | X | X | 100 |
| Fixed Asset Additions | X | X | 0 |
| Dividend payments | X | X | 0 |
| Income Tax Payments | X | X | 0 |
| TOTAL OUTFLOWS | X | X | |
| Inflow - Outflow | X | X | |
| Beginning Cash | X | X | |
| Desired Cash | X | 50 | 40 |
| Cash Produced Over + or Under - Immediate Need | X | X | |
| Loan Required | X | X | |
| Loan Repaid | X | X | |
| Loan balance | X | 0 | |
| Securities Purchased | X | X | |
| Securities Sold | X | X | |
| Securities Balance | X | 0 | |
