$98$

Part $2$ Fundamental Concepts in Financial Management

Problems

Easy

Problems

$1-8$

$3-1$ BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plant and equipment, and the firm has no excess cash. The firm has total assets of $$2\mathrm{.}5$mil$-$ lion and net plant and equipment equals $$2$ million. It has notes payable of $$150,000,$ longterm debt of $$750,000,$ and total common equity of $$1\mathrm{.}5$ million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

a$.$ What is the company's total debt?

b$.$ What is the amount of total liabilities and equity that appears on the firm's balance sheet?

c$.$ What is the balance of current assets on the firm's balance sheet?

d$.$ What is the balance of current liabilities on the firm's balance sheet?

e$.$ What is the amount of accounts payable and accruals on its balance sheet? $($Hint: Consider this as a single line item on the firm's balance sheet.$)$

f$.$ What is the firm's net working capital?

g$.$ What is the firm's net operating working capital?

h$.$ What is the explanation for the difference in your answers to parts $f$ and $g?$

$3-2$ INCOME STATEMENT Byron Books Inc. recently reported $$15$ million of net income. Its EBIT was $$20\mathrm{.}8$ million, and its tax rate was $25\%.$ What was its interest expense? $($Hint: Write out the headings for an income statement, and fill in the known values. Then divide $$15$ million of net income by $(1-T)=0\mathrm{.}75$ to find the pretax income. The difference between EBIT and taxable income must be interest expense. Use this same procedure to complete similar problems.$)$

$3-3$ INCOME STATEMENT Patterson Brothers recently reported an EBITDA of $$7\mathrm{.}5$ million and net income of $$2\mathrm{.}625$ million. It had $$1\mathrm{.}5$ million of interest expense, and its corporate tax rate was $25\%.$ What was its charge for depreciation and amortization?

$3-4$ STATEMENT OF STOCKHOLDERS' EQUITY In its most recent financial statements, Nessler Inc. reported $$75$ million of net income and $$825$ million of retained earnings. The previous retained earnings were $$784$ million. How much in dividends were paid to shareholders during the year? Assume that all dividends declared were actually paid.