FINC6601 Module 03 Assignment CASH FLOWS

Purpose: To provide specific practice in computing the actual cash flows contained in standard accounting statements. In this problem we look at two different ways to state cash flows: the financial statement of cash flows and the accounting statement of cash flows. (Note that it does not matter how notes payable are classified in this problem because there are no notes payable in this problem.)

Llewellyn Industries has the following financial statements for 2014 and 2015. The firm paid a dividend in 2015 of $292 million. The common stock of Llewellyn has no par value. Llewellyn also issued stock and long-term debt in 2015.

Balance Sheet as of December 31, 2014 ($millions)
Cash 391 Accounts Payable 485
	Accounts Receivable		668		Accrued Expenses		401
Inventory 741 Current Liabilities 886
Current Assets 1,800
	Gross Fixed Assets		3,888		Deferred Taxes		159
Less: Accumulated Depr. 1,092 Long-term Debt 1,148
	Net Fixed Assets		2,796		Long-term Liabilities		1,307
Common Stock 926
					Less Treasury stock		126
Retained Earnings 1,603
					Total Owners equity		2,403
Total Assets 4,596 Total Liabilities and Equity 4,596

FINC 6601 Module 03 Assignment Page 1

Balance Sheet as of December 31, 2015 ($millions)
	Cash		452		Accounts Payable		519
Accounts Receivable 716 Accrued Expenses 247
	Inventory		733		Current Liabilities		766
Current Assets 1,901
Gross Fixed Assets 4,941 Deferred taxes 330
Less: Accumulated Depr. 1,340 Long-term Debt 1,179
Net Fixed Assets 3,601 Long-term Liabilities 1,509
Common Stock 941
Less Treasury stock 192
Retained Earnings 2,478
Total Owners equity 3,227
	Total Assets		5,502		Total Liabilities and Equity		5,502

	2015 Income Statement ($millions)
Sales 7,557
COGS administrative expenses 4,456
	General and administrative expenses		848
Depreciation Expense 248
	Operating Income		2,005
Other income 75
	EBIT		2,080
Interest 137
	EBT		1,943
Taxes 776
Current: $605
Deferred: $171
Net Income 1,167

Questions:

There are 5 questions. Show your work in arriving at your answers. Assume Llewellyn uses these statements for both financial reporting and tax purposes and that it sold no assets during 2015. Compute the cash flows for 2015 using

(1) The financial statement of cash flows (see Table 2.6 in the textbook). (2) The accounting statement of cash flows (see Table 2.7 in the textbook).

(3) Write a paragraph describing Llewellyns underlying activities as depicted in the two statements above. Did assets grow or shrink? If assets grew, where did the funds come from to make them grow? What are the differences between the two cash flow statements for Llewellyn?

(4) Assume that at the end of 2015 Llewellyn Industries is now operating at full capacity, and that its profitability, asset usage and dividend policy are well represented by the 2015 financial statements. How fast can Llewellyn grow if it seeks no more external financing (debt or equity) but maintains its dividend policy? (State your answer as a percentage to 1 decimal point. I.e., xx.x%)

(5) Under the same assumptions as (4), how fast can Llewellyn grow if it only seeks additional debt financing in the amount necessary to keep its debt/equity ratio constant? (State your answer as a percentage to 1 decimal point.)