Qi Sun
Finance 3504
Steven Casper
09/03/2014

Mini-case 1 (Chapter 2)

1. The income statement for 2010 and 2011:

Income statement

2010

2011 Sales
$321,437

$391,810 Cost of goods sold
163,849

206,886 Selling & administrative
32,223

42,058 Depreciation
46,255

52,282 EBIT
$79,110

$90,584 Interest
10,056

11,526 EBT
$69,054

$79,058 Taxes
13,810.80

15,811.60 Net income
$55,243.20

$63,246.40

Dividends
$27,622

$31,623 Addition to retained earnings
27,622

31,623

2. Two balance sheets for 2010 and 2011:

Balance sheet as of Dec. 31, 2010 Cash
$23,643

Accounts payable
$41,786

Accounts receivable
16,753

Notes payable
19,046

Inventory
32,255

Current liabilities
$60,832

Current assets
$72,651

Long-term debt
$103,006

Net fixed assets
$204,068

Owners' equity
$112,881

Total assets
$276,719

Total liab. & equity
$276,719

In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as: Owners’ equity = Total liab & equity – Long-term debt – Current liabilities Owners’ equity = $276,719 – 103,006 – 60,832 = $112,881

Balance sheet as of Dec. 31, 2011 Cash
$35,721

Accounts payable
$47,325

Accounts receivable
21,732

Notes payable
20,796

Inventory
43,381

Current liabilities
$68,121

Current assets
$100,834

Long-term debt
$116,334

Net fixed assets
$248,625

Owners' equity
$165,004

Total assets
$349,459

Total liab. & equity
$349,459

The owner’s equity for 2011 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so:

Owners’ equity = Beginning owners’ equity + 2011 Dividends + 2011 New equity
Owners’ equity = $112,881 + 31,623 + 20,500 = $165,004

3. Calculate the OCF:

OCF = EBIT + Depreciation – Taxes

The OCF for 2010 and 2011:

2010 OCF = $79,110 + 46,255 – 13,810.80 = $111,554

2011 OCF = $90,584 + 52,282 – 15,812 = $127,054

4. To calculate the cash flow from assets for 2011, we need to find the capital spending and change in net working capital.

The capital spending for 2011 was:

Capital spending

Ending net fixed assets
$248,625

– Beginning net fixed assets
204,068

+ Depreciation
52,282

Net capital spending
$ 96,839

The change in net working capital for 2011 was:

Change in net working capital Ending NWC
$32,713

– Beginning NWC
11,819

Change in NWC
$20,894

So, the cash flow from assets