Essentials of Managerial Finance 14th edition Scott Besley, Eugene F. Brigham - Solutions

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=+ST4–1 Depreciation and cash flow A firm expects to have earnings before interest and taxes(EBIT) of $160,000 in each of the next 6 years. It pays annual interest of $15,000. The firm is considering the purchase of an asset that costs $140,000, requires $10,000 in installation cost, and has a
=+a. Calculate the annual depreciation for the asset purchase using the MACRS depreciation percentages in Table 4.2.
=+b. Calculate the firm’s operating cash flows for each of the 6 years, using Equation 4.3. Assume that the firm is subject to a 21% tax rate on all the profit that it earns.
=+c. Suppose that the firm’s net fixed assets, current assets, accounts payable, and accruals had the following values at the start and end of the final year (year 6).
=+Calculate the firm’s free cash flow (FCF) for that year.Year 6 start Year 6 end Net fixed assets $ 7,500 $ 0 Current assets 90,000 110,000 Accounts payable 40,000 45,000 Accruals 8,000 7,000
=+d. Compare and discuss the significance of each value calculated in parts b and c.
=+ST4–2 Cash budget and pro forma balance sheet inputs Jane McDonald, a financial analyst for Carroll Company, has prepared the following sales and cash disbursement estimates for the period February–June of the current year.Month Sales Cash disbursements February $500 $400 March 600 300 April
=+a. Prepare cash budgets for April, May, and June.
=+b. How much financing, if any, at a maximum would Carroll Company require to meet its obligations during this 3-month period?
=+c. A pro forma balance sheet dated at the end of June is to be prepared from the information presented. Give the size of each of the following: cash, notes payable, marketable securities, and accounts receivable.
=+LG 5 ST4–3 Pro forma income statement Euro Designs Inc. expects sales during 2020 to rise from the 2019 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2020 is expected to drop to $325,000. The firm plans to increase its cash dividend
=+a. Use the percent-of-sales method to prepare a 2020 pro forma income statement for Euro Designs Inc.
=+b. Explain why the statement may underestimate the company’s actual 2020 pro forma income.
=+E4–1 The installed cost of a new computerized controller was $65,000. Calculate the depreciation schedule by year assuming a recovery period of 5 years and using the appropriate MACRS depreciation percentages given in Table 4.2.
=+LG 3 E4–3 Star Industries has published its annual account. It indicates that during the year the firm had sales of $3,500,000, cost of goods sold totaled $2,300,000, operating expenses of $420,000, and depreciation expenses of $240,000. The firm is in 30%tax bracket. Determine the firm’s
=+LG 3 E4–4 Plato PLC is a supplier to large construction companies. During 2017, Plato experienced an increase in net fixed assets of £1,500,000 and had depreciation of£1,000,000. It also experienced an increase in current assets of £750,000 and accounts payable of £375,000. If operating
=+LG 5 E4–5 York Engineering Ltd. forecasts sales of €1,250,000 for 2022. Assume that the firm has fixed costs of €320,000 and variable costs amount to 30% of sales. Operating expenses are estimated to include fixed costs of €37,000 and a variable portion equal to 10% of sales. Interest
=+P4–1 Depreciation On March 20, 2019, Norton Systems acquired two new assets. Asset A was research equipment costing $17,000 and having a 3-year recovery period.Asset B was duplicating equipment with an installed cost of $45,000 and a 5-year recovery period. Using the MACRS depreciation
=+LG 2 P4–2 Depreciation Early this year, Rubber Incorporated purchased a new machine for$12,000 to shape rubber. It is estimated that the new machine will have a recovery period of 3 years with an expected salvage value of $2,500. Use the MACRS depreciation percentages in Table 4.2 to develop a
=+LG 2 P4–3 MACRS depreciation expense and accounting cash flow Pavlovich Instruments Inc., a maker of precision telescopes, expects to report pretax income of $430,000 this year. The company’s financial manager is considering the timing of a purchase of new computerized lens grinders. The
=+a. If the firm purchases the grinders before year’s end, what depreciation expense will it be able to claim this year? (Use Table 4.2.)
=+b. If the firm reduces its reported income by the amount of the depreciation expense calculated in parta, what tax savings will result?
=+LG 2 LG 3 P4–4 Depreciation and accounting cash flow A firm has gathered the following data for its current year’s operations. The firm has only one asset, which has a 3-year recovery period. The cost of the asset a year ago was $165,000. The depreciation rate is 45%.Accruals $ 12,500 Current
=+a. Calculate the firm’s operating cash flow for the current year (see Equations 4.2).
=+b. Why is it important to add back noncash items such as depreciation when calculating cash flows?
=+LG 3 P4–5 Classifying inflows and outflows of cash Classify each of the following items as an inflow (I) or an outflow (O) of cash.Item Change ($) Item Change ($)Cash +150 Cash dividends +540 Accounts payable +1,100 Accounts receivable -460 Notes payable -530 Inventory -160 Fixed assets +550
=+LG 3 P4–6 Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.X MyLab Keith Corporation Balance Sheets December 31 Assets 2019 2018 Cash $ 1,500 $ 1,000 Marketable securities 1,800 1,200 Accounts receivable
=+a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended December 31, 2019, using Equation 4.1.
=+b. Calculate the firm’s operating cash flow (OCF) for the year ended December 31, 2019, using Equation 4.3.
=+c. Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2019, using Equation 4.4.
=+d. Interpret, compare, and contrast your cash flow estimates in parts b and c.
=+ P4-7 Statement of cash flows The following is an extract from the 2017 and 2018 financial statements of Garmen Ltd. All figures are in thousands (£).Account 2017 2018 Preferred stock 300 300 Common stock (par) 600 600 Share premium 800 800 Retained earnings 450 575 Total stockholders’ equity
=+a. Garmen’s statement of cash flows for 2018 shows £0 cash inflow resulting from changes in stockholders’ equity, yet the balance sheet shows that stockholders’ equity increased by £125,000 in 2019. Can you explain this apparent contradiction?
=+b. Will the statement of cash flows for Garmen Ltd. show £0 cash inflow resulting from the change in stockholders’ equity every year, or are other values possible?Explain the possible situations when the cash flows from the change in stockholders’ equity could be positive or negative in
=+P4–8 Cash receipts A firm reported actual sales of $65,000 in the month of June and$70,000 in July. The sales forecasts indicate that sales are expected to be $85,000,$92,000, and $95,750 for the months of August, September, and October, respectively. Sales are 60% cash and 40% credit, and
=+LG 4 P4–9 Cash disbursements schedule The Coffee Specialist Corporation has approached you to compile a cash disbursement schedule for the months of March, April, and May. Use the following information and Table 4.9 as a guide to prepare this schedule.Sales: January = $520,000; February =
=+LG 4 P4–10 Cash budget: Basic Farmers Delight Corporation reported sales of $350,000 in June,$380,000 in July, and $390,000 in August. The forecasts for September, October, and November are $385,000, $418,000, and $429,000, respectively. The initial cash balance on September 1 is $150,000, and
=+LG 4 P4–11 Preparation of cash budget Sam and Suzy Sizeman need to prepare a cash budget for the last quarter of 2020 to make sure they can cover their expenditures during the period. Sam and Suzy have been preparing budgets for the past several years and have been able to identify the
=+a. Prepare a quarterly cash budget for Sam and Suzy covering the months October through December 2020.
=+b. Are there individual months that incur a deficit?
=+c. What is the cumulative cash surplus or deficit by the end of December 2020?
=+LG 4 P4–12 Cash budget: Advanced The Green PLC has projected following unit sales for January 2019 to August 2019. The sales of Green PLC are 30% in cash and the remainder is on a credit for 1 month. It also expects cash receipts from its subsidiaries worth £40,000 in March, £26,000 in
=+Wages and salaries amount to 25% of the sales in the preceding month. They also need to pay rent of £15,000 every month. The payment for a new machinery will be due in March for £45,000 and will be paid in cash. They have to pay interim tax of £45,000 in May.The firm also expects to pay
=+a. Assuming that the firm has a cash balance of £32,000 at the beginning of January, estimate the end-of-month closing cash balances for each month, March to August.
=+b. The directors decide that the cash balance should be maintained at £20,000 at any given point of time. Determine the required total financing or excess cash balance for each month, March to August.
=+c. Do you think that Green PLC will need an overdraft facility for the period from March to August? What overdraft limit should they ask for while requesting a line of credit from banks?
=+LG 4 P4–13 Cash flow concepts The following represent financial transactions that Johnsfield &Co. will be undertaking in the next planning period. For each transaction, check the statement or statements that will be affected immediately.Statement Transaction Cash budget Pro forma income
=+LG 4 P4–14 Cash budget: Scenario analysis Markham Enterprises has gathered the following data to plan for its cash requirements and short-term investment opportunities for June, July, and August. All amounts are shown in thousands of dollars.June July August Pessi- Most Opti- Pessi- Most Opti-
=+a. Prepare a scenario analysis of Markham Enterprises. The beginning balance is–$28,000 for June and the minimum required cash balance is $30,000.
=+b. Use the analysis prepared in part a to identify Markham’s financing needs or surplus over the three scenarios. If needed, where could the funds be obtained? What should be done with a surplus of cash?
=+LG 4 P4–15 Multiple cash budgets: Scenario analysis Brownstein Inc. expects sales of $100,000 during each of the next 3 months. It will make monthly purchases of $60,000 during this time. Wages and salaries are $10,000 per month plus 5% of sales. Brownstein expects to make a tax payment of
=+a. Construct a cash budget for the next 3 months.
=+b. Brownstein is unsure of the sales levels, but all other figures are certain. If the most pessimistic sales figure is $80,000 per month and the most optimistic is$120,000 per month, what are the monthly minimum and maximum ending cash balances that the firm can expect for each of the 1-month
=+c. Briefly discuss how the financial manager can use the data in parts a and b to plan for financing needs.
=+LG 5 P4–16 Pro forma income statement Bells Manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Bells Manufacturing is planning on paying cash dividends of
=+a. Compile the pro forma income statement for the year ended December 31, 2016, using the percentage-of-sales method.
=+b. Compile the pro forma income statement for the year ended December 31, 2016, using the fixed and variable cost data.
=+c. As the financial manager, which of the two pro forma statements would you regard as more accurate? Explain.Bells Manufacturing Income Statement for the Year Ended December 31, 2015 Sales revenue $1,800,000 Less: Cost of goods sold 1,100,000 Gross profits $ 700,000 Less: Operating expenses
=+P4–17 Pro forma income statement: Scenario analysis Smyth Inc. has decided to do a scenario analysis for the year 2018. Their pessimistic prediction for sales is$360,000, the most likley amount of sale is $450,000, and the optimistic sales prediction is $520,000. Smyth’s income statement for
=+a. Refer the income statement for December 31, 2017, and using the percent-ofsales method, develop the pessimistic, most likely, and optimistic pro forma income statement for the coming year ending on December 31, 2018.
=+b. The percent-of-sales method may result in an overstatement of profits for the pessimistic case and an understatement of profit for the most likely and optimistic cases. Explain why.
=+c. Restate the pro forma income statement in part to accommodate the following information about the 2018 costs:$75,000 of the cost of goods sold is fixed, rest is variable.$40,000 of operating expenses is fixed, rest is variable.All the interest expense is fixed.
=+d. Compare your results in part a to the results in partc. Do your observations confirm your explanation in part b?
=+LG 5 P4–18 Pro forma balance sheet: Basic Leonard Industries wishes to prepare a pro forma balance sheet for December 31, 2020. The firm expects 2020 sales to total$3,000,000. The following information has been gathered:(1) A minimum cash balance of $50,000 is desired.(2) Marketable securities
=+a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2020, for Leonard Industries.
=+b. How much, if any, additional financing will Leonard Industries require in 2020?Discuss.
=+c. Could Leonard Industries adjust its planned 2020 dividend to avoid the situation described in part b? Explain how.
=+LG 5 P4–19 Pro forma balance sheet Randy & Wiskers Enterprises has 2018 sales of $15.5 million. It wishes to analyze expected performance and financing needs for 2019. You are requested to compile a pro forma balance sheet. Given the following information, respond to parts a and b.(1) The
=+a. Prepare a pro forma balance sheet dated December 31, 2019.
=+b. Discuss the financing changes suggested by the statement prepared in part a.
=+LG 5 P4–20 Integrative: Pro forma statements Abru Industries has decided to prepare financial plans. Use the financial statements and other information provided below to prepare the financial plans.(1) The firm has estimated that its sales for 2020 will be €2.7 million.(2) The firm expects to
=+a. Prepare a pro forma income statement for year ended December 31, 2020, using percent-of-sales method.
=+b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.
=+c. Analyze these statements and discuss if any external financing is required.
=+P4–21 Integrative: Pro forma statements Morten Metal Limited has assembled past (2019)financial statements (income statement and balance sheet follows) and financial projections for use in preparing financial plans for the coming year (2020)Information related to financial projections for the
=+a. Prepare a pro forma income statement for the year ended December 31, 2020, using the fixed cost data given to improve the accuracy of percent-of-sales method.
=+b. Prepare a pro forma balance sheet as of December 31, 2020, using the information provided and the judgmental approach. Include a reconciliation of retained earnings account.
=+c. Analyze these statements, and discuss the resulting external financing required.
=+You have been assigned the task of putting together a statement for the ACME Company that shows its expected inflows and outflows of cash over the months of July 2020 through December 2020.SPREADSHEET EXERCISE M04_ZUTT1515_15_GE_C04_pp188-234.indd 233 06/08/18 4:42 PM 234 PART TWO Financial
=+a. Prepare a cash budget for July 2020 through December 2020 by creating a combined spreadsheet that incorporates spreadsheets similar to those in Tables 4.8, 4.9, and 4.10. Divide your spreadsheet into three sections:(1) Total cash receipts(2) Total cash disbursements(3) Cash budget covering
=+b. Based on your analysis, briefly describe the outlook for this company over the next 6 months. Discuss its specific obligations and the funds available to meet them. What could the firm do in the case of a cash deficit? (Where could it get the money?) What should the firm do if it has a cash
Issuing preferred stock is one method that firms use to finance their operations. But not all firms issue preferred stock. Allstate Corporation [ALL], an insurance and investments firm, does have preferred stock in its capital structure. Answer the following questions about Allstate:a. Has the
Gillette Company [G], a company that manufactures and sells consumer products, uses only debt and common stock to finance the firm. The firm’s EBIT and interest expense have fluctuated during the past five years. Answer the following questions about Gillette:a. What is the degree of financial
One way to measure whether a firm can meet its short-term debt obligations is to analyze the firm’s liquidity. Firms that are growing rapidly often find themselves in a liquidity crisis. Cisco Systems Inc. [CSCO] is a technology firm that manufactures and sells networking and communication
Kimberly-Clark [KMB] is a consumer and business-to-business products manufacturing firm. Analyze Kimberly-Clark’s credit policy as compared with peers in its industry. Answer the following questions:a. What has been the trend of Kimberly-Clark’s receivables turnover during the past five
Office Depot Inc. [ODP] and Staples Inc. [SPLS] both sell office products, supplies, and services. Using the liquidity ratios and asset management ratios, in addition to the firms’ financial statements, discuss the following questions:a. Compare the firms’ liquidity positions.b. Evaluate each
Compare the dividend payouts of McDonald’s Corporation [MCD], a quickservice restaurant firm, and its peers, as denoted by SIC code. Answer the following questions:a. What was the yearly dividend yield during the past five years for McDonald’s?b. How much did McDonald’s pay out in dividends
Family Dollar Stores [FDO], a firm operating discount retail stores, has no long-term debt in its capital structure, even though the use of financial leverage in the form of long-term debt might increase the firm’s earnings per share. Answer the following questions about Family Dollar:a. What was
Compare the capital structures of the following firms and answer the related questions: General Motors Corporation [GM], an automobile manufacturing and financing firm; Walt Disney Company [DIS], an entertainment and information company; and Amazon Inc. [AMZN], an online retail sales firm.a. What
Imagine you hold a portfolio of three stocks: Coca Cola Company [KO], a manufacturer and distributor of soft drinks; Dell Inc. [DELL], a manufacturer of personal and enterprise computers; and Fifth Third Bank [FITB], a large bank that offers commercial banking, retail banking, and investment
Cisco Systems Inc. [CSCO], which is located in San Jose, California, manufactures and sells networking and communication products and provides related services. Cisco is a growing company that makes large capital outlays for plant and equipment to produce its inventory. Cisco’s customer base
Wachovia [WB] is a financial services company that is often held in the portfolios of investors who are interested in earning dividend income. These investors are interested in the expected growth rate in dividends for such companies because they often rely on dividends as part of their annual
Starbucks Corporation [SBUX] does much more than make great latte. The company purchases, roasts, and markets coffee beans. Starbucks also sells such products as premium teas and coffee-related accessories through its retail stores. Imagine you are one of Starbucks’ shareholders and you would
The Dow Jones Industrial Average (DJIA), which is an index that includes the 30 largest industrial firms in the United States, is one of the most quoted financial market indexes in the world. Many investors use the DJIA as a barometer of the performance of the U.S. financial markets because it
Nextel Communications Inc. [NXTL] is a provider of digital wireless communication services. Using the information from the firm’s cash flow statements, answer the following questions. [Hint: Click on Financials/ Financial Statements/Thomson Financials/Cash Flow Statements.]a. What conclusions can
Intel Corporation [INTC] designs, manufactures, and markets computer and communications products. Using the financial ratios discussed in the chapter, compare Intel with its peer firms, as designated by its industry group. Answer the following questions. [Hint: Click on Peers/Peer Sets/Peers by DJ
Using the Thomson One database, find a multinational firm that is based in the United States. Answer these questions:a. What is the name and ticker symbol of the company you selected?b. What is the industry and market sector in which the firm is classified?c. What is the firm’s major line of
Adobe Systems Inc. [NASNM:ADBE] makes the popular Adobe Acrobat software for creating PDF-formatted files. Symantec Corporation [NASNM: SYMC] produces the popular Norton Security software for computer virus protection. These firms are peers, operating in the same industry—the technology
How do financial intermediaries in the United States differ from their counterparts in other countries? Why are they different?
In 2008 the Sirmans Company paid dividends totaling $3.6 million on net income of $10.8 million. Sirmans had a normal year in 2008, and for the past 10 years, earnings have grown at a constant rate of 10 percent. However, in 2009 earnings are expected to jump to $14.4 million, and the firm expects

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Essentials of Managerial Finance 14th edition Scott Besley, Eugene F. Brigham - Solutions

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