fin 370
Nareekan Wongwisetsiri
Finance 317
Financial Statements
Homework #1
1. Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $650 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. Calculate the firm’s net income and free cash flow. Sale 8,250 Operating cost 5,750 Depreciation 650 EBIT 1,850 Interest (3,200*.05) 160 EBT 1,690 Tax (1690*.35) 591.5 Net income 1098.5
Free cash flow = {EBIT (1-T)+ Depreciation}-{capital expenditure + net operating working capital} = {1850(1-.35)+650}-{1250+300} = 302.5
2. Casey Motors recently reported the following information:
Net income = $600,000.
Tax rate = 40%.
Interest expense = $200,000.
Total investor-supplied operating capital employed = $9 million.
After-tax cost of capital = 10%.
What is the company’s EVA?
= EBIT (1-T)-(Total investor supplied *After tax percent per capital) = 600000(1-.40)–(9000000*.10) = -540000
3. Kwok Enterprises has the following income statement.
Sales $2,250 Costs 1,400 Depreciation 250 EBIT $ 600 Interest expense 70 EBT $ 530 Taxes (40%) 212 Net income $ 318
What is the firm’s after-tax operating income? = EBIT (1-T) = 600(1-.40) = 360
4. Wu Systems has the following balance sheet. How much net operating working capital does the firm have?
Cash $ 100 Accounts payable $ 200
Accounts receivable 650 Accruals 350
Inventory 550 Notes payable 350 Current assets $1,300 Current liabilities $ 900
Net fixed assets 1,000 Long-term debt 600 Common equity 300 Retained earnings
Finance 317
Financial Statements
Homework #1
1. Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $650 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. Calculate the firm’s net income and free cash flow. Sale 8,250 Operating cost 5,750 Depreciation 650 EBIT 1,850 Interest (3,200*.05) 160 EBT 1,690 Tax (1690*.35) 591.5 Net income 1098.5
Free cash flow = {EBIT (1-T)+ Depreciation}-{capital expenditure + net operating working capital} = {1850(1-.35)+650}-{1250+300} = 302.5
2. Casey Motors recently reported the following information:
Net income = $600,000.
Tax rate = 40%.
Interest expense = $200,000.
Total investor-supplied operating capital employed = $9 million.
After-tax cost of capital = 10%.
What is the company’s EVA?
= EBIT (1-T)-(Total investor supplied *After tax percent per capital) = 600000(1-.40)–(9000000*.10) = -540000
3. Kwok Enterprises has the following income statement.
Sales $2,250 Costs 1,400 Depreciation 250 EBIT $ 600 Interest expense 70 EBT $ 530 Taxes (40%) 212 Net income $ 318
What is the firm’s after-tax operating income? = EBIT (1-T) = 600(1-.40) = 360
4. Wu Systems has the following balance sheet. How much net operating working capital does the firm have?
Cash $ 100 Accounts payable $ 200
Accounts receivable 650 Accruals 350
Inventory 550 Notes payable 350 Current assets $1,300 Current liabilities $ 900
Net fixed assets 1,000 Long-term debt 600 Common equity 300 Retained earnings