Income Statement Sales $215,000 Costs 117,000 Other expenses 6,700 Depreciation 18,400 EBIT $72,900 Interest 10,000 Taxable income $62,900 Taxes 25,370 Net income $37,530 Dividends $9,500 Additions to RE $28,030 OCF = EBIT + Depreciation Taxes a. – OCF = $72,900 + 18,400 25,370 – OCF = $65,930 CFC = Interest Net new LTD b. – CFC = $10,000 (–$7,200) – CFC = $17,200 Note that the net new long-term debt is negative because the company repaid part of its long- term debt. CFS = Dividends Net new equity c. – CFS = $9,500 8,100 – CFS = $1,400 We know that CFA = CFC + CFS, so: d. CFA = $17,200 + 1,400 = $18,600 CFA is also equal to OCF Net capital spending Change in NWC. We already know OCF. – – Net capital spending is equal to: Net capital spending = Increase in NFA + Depreciation Net capital spending = $28,400 + 18,400 Net capital spending = $46,800 Now we can use: CFA = OCF Net capital spending Change in NWC – – $18,600 = $65,930 46,800 Change in NWC – – Solving for the change in NWC $530, meaning the company increased its NWC by $530. 15. The solution to this question works the income statement backwards. Starting at the bottom: Net income = Dividends + Addition to retained earnings
Income Statement Sales $215,000 Costs 117,000 Other expenses 6,700 Depreciation 18,400 EBIT $72,900 Interest 10,000 Taxable income $62,900 Taxes 25,370 Net income $37,530 Dividends $9,500 Additions to RE $28,030 a. OCF = EBIT + Depreciation – Taxes OCF = $72,900 + 18,400 – 25,370 OCF = $65,930 b. CFC = Interest – Net new LTD CFC = $10,000 – (–$7,200) CFC = $17,200 Note that the net new long-term debt is negative because the company repaid part of its long- term debt. c. CFS = Dividends – Net new equity CFS = $9,500 – 8,100 CFS = $1,400 d. We know that CFA = CFC + CFS, so: CFA = $17,200 + 1,400 = $18,600 CFA is also equal to OCF – Net capital spending – Change in NWC. We already know OCF. Net capital spending is equal to: Net capital spending = Increase in NFA + Depreciation Net capital spending = $28,400 + 18,400 Net capital spending = $46,800 Now we can use: CFA = OCF – Net capital spending – Change in NWC $18,600 = $65,930 – 46,800 – Change in NWC Solving for the change in NWC $530, meaning the company increased its NWC by $530. 15. The solution to this question works the income statement backwards. Starting at the bottom: Net income = Dividends + Addition to retained earnings
solution-manual-corporate-finance-11th-edition-ross.docx