1. (18 points) ABC Computer Company shows the following information on its pro forma income statement...

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1. (18 points) ABC Computer Company shows the following information on its pro forma income statement and statement of financial position: 2023 Sale Cost of goods sold Depreciation Interest Tax rate 40% 2023 1,900 Net Working Capital (Non-cash) Capital Expenditure | 10,000 2024 60,000 30,000 4,000 1,000 2024 1,500 5,000 2025 64,000 31,000 4,500 500 2025 2,500 5,200 2026 70,000 34,000 4,800 800 2026 3,000 5,400 a. (7pts) Calculate the firm's cash flow from operating activities during the years 2024 and 2026. b. (4pts) In addition, you are told that the company's cash flow to bondholders and cash flow to shareholders in the year 2024 were $8,000 and $3,400, respectively. What was the increase or decrease in cash during 2020? Hint: You have two formulas for cash flow from assets (CFFA). c. (3pts) Explain in words why the net income in 2024 is different from the cash flow generated from the assets during this year. d. (4pts) From the company's statement of financial position, you collect that the average inventory in 2024 is $4,500, and the average of accounts receivables in 2024 is $6,000. Calculate the Operating cycle in 2024. 2. (4 points) In 2000, XYZ corporation was formed by selling 100,000 shares of stocks (each $5) and issuing 200 bonds (each $1,000). Today, XYZ's stock is selling for $40 per share. As a result of changes in the interest rate, the market value of XYZ's bonds in total now is $170,000. a. b. (2pts) What are the firm's book value and market value now? (2pts) What is the market value of the assets now? 3. (17 points) Your retirement account (which is expected to yield an 8% return per year) has a current balance of $5,000. You are going to retire in 20 years. a. (6pts) How much would you need to invest each year in order to accumulate a total amount that will guarantee withdrawing $10,000 annually for 30 years starting from year 21? b. (4pts) If you decide to invest monthly, how much would you need to invest each month in order to accumulate a total amount that will guarantee withdrawing $10,000 annually for 30 years starting from year 21? c. (2pts) Compare the annual investments in part (a) with the total amount that you would invest in one year in part (b) (12 times the monthly investments). Which one is greater? Why? d. (5pts) You are worried about future inflations and wondering what your answer to part a would be if you plan increasing withdrawals; $10,000 at the end of year 21 growing at a constant rate of 4% each year for 30 years. 4. (3 points) What is the present value of a growing perpetuity that starts at $60 at the end of year 5 and grows at a 3% annual rate? The appropriate discount rate is 9%. 1. (18 points) ABC Computer Company shows the following information on its pro forma income statement and statement of financial position: 2023 Sale Cost of goods sold Depreciation Interest Tax rate 40% 2023 1,900 Net Working Capital (Non-cash) Capital Expenditure | 10,000 2024 60,000 30,000 4,000 1,000 2024 1,500 5,000 2025 64,000 31,000 4,500 500 2025 2,500 5,200 2026 70,000 34,000 4,800 800 2026 3,000 5,400 a. (7pts) Calculate the firm's cash flow from operating activities during the years 2024 and 2026. b. (4pts) In addition, you are told that the company's cash flow to bondholders and cash flow to shareholders in the year 2024 were $8,000 and $3,400, respectively. What was the increase or decrease in cash during 2020? Hint: You have two formulas for cash flow from assets (CFFA). c. (3pts) Explain in words why the net income in 2024 is different from the cash flow generated from the assets during this year. d. (4pts) From the company's statement of financial position, you collect that the average inventory in 2024 is $4,500, and the average of accounts receivables in 2024 is $6,000. Calculate the Operating cycle in 2024. 2. (4 points) In 2000, XYZ corporation was formed by selling 100,000 shares of stocks (each $5) and issuing 200 bonds (each $1,000). Today, XYZ's stock is selling for $40 per share. As a result of changes in the interest rate, the market value of XYZ's bonds in total now is $170,000. a. b. (2pts) What are the firm's book value and market value now? (2pts) What is the market value of the assets now? 3. (17 points) Your retirement account (which is expected to yield an 8% return per year) has a current balance of $5,000. You are going to retire in 20 years. a. (6pts) How much would you need to invest each year in order to accumulate a total amount that will guarantee withdrawing $10,000 annually for 30 years starting from year 21? b. (4pts) If you decide to invest monthly, how much would you need to invest each month in order to accumulate a total amount that will guarantee withdrawing $10,000 annually for 30 years starting from year 21? c. (2pts) Compare the annual investments in part (a) with the total amount that you would invest in one year in part (b) (12 times the monthly investments). Which one is greater? Why? d. (5pts) You are worried about future inflations and wondering what your answer to part a would be if you plan increasing withdrawals; $10,000 at the end of year 21 growing at a constant rate of 4% each year for 30 years. 4. (3 points) What is the present value of a growing perpetuity that starts at $60 at the end of year 5 and grows at a 3% annual rate? The appropriate discount rate is 9%.

Answer rating: 100% (QA)

Here are the answers 1 a CFFA in 2024 Net Income Depreciation Change in NWC 2500 4500 1500 5500 CFFA ... View the full answer