Cumberland Industries' most recent sales were $550,000,000; operating costs (excluding depreciation) were equal to 80% of sales; net fixed assets were $70,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,000,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings.

Sales 2015

Operating costs excluding depreciation:

EBITD:

Depreciation (Cumberland has no amortization charges):

EBIT:

Interest expense:

EBT:

Taxes (40%):

Net income:

Common dividends:

Addition to retained earnings:

2.b Cumberland Industries' partial balance sheets are shown below. Cumberland issued $10,000,000 of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity.

Cumberland Industries December 31 Balance Sheets

(in thousands of dollars)

2. c. Construct the statement of cash flows for the most recent year

Statement of Cash Flows

(in thousands of dollars)

Operating Activities

Net Income:

Adjustments

Noncash adjustment

Depreciation:

Due to changes in working capital

Due to change in accounts receivable :

Due to change in inventories :

Due to change in accounts payable:

Due to change in accruals:

Net cash provided (used) by operating activities:

Investing Activities

Cash used to acquire gross fixed assets :

Due to change in short-term investments :

Net cash provided (used) by investing activities:

Financing Activities

Due to change in notes payable:

Due to change in long-term debt:

Due to change in common stock :

Payment of common dividends :

Net cash provided (used) by financing activities :

Net increase/decrease in cash:

Add: Cash balance at the beginning of the year:

Cash balance at the end of the year :

Check: cash balance in statement of cash flows should equal the cash on balance sheets as shown here:

2. d) Using the financial statements given in parts (a) and (b) calculate Cumberland industries free cash flow in year 2015. Interpret your result assuming the firms WACC is 10%.

2015 2014 Assets Cash and cash equivalents Short-term investments Accounts Receivable Inventories Total current assets Net fixed assets Total assets $91,450 27,300 108,470 38,450 $265,670 70,000 $335.670 $74,625 15,100 85,527 34,982 $210,234 42,436 $252.670 Liabilities and equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity $30,761 30,405 12,717 $73,883 80,263 $154,146 $. $23,109 22,656 14,217 $59,982 63,914 $123,896 $90,000 38,774 $128,774 $252.670 $