Problem 2.3 Calculate the free cash flows for Skyhawk, Inc., for the year ended December 31, 2018, from both operating (asset) and financing perspectives. Skyhawl, Inc. Income Statement for Year ended December 31, 2020 (Numbers are in million) Sales $2.000 Cost of Sales 1.000 Gross Profit $1,000 Operating Expenses 300 Depreciation 200 Operating Income $500 Interest expenses 100 Taxes 84 Net income $316 Slyhawl, Inc. Comparative Balance Sheet (Numbers are in million) 12/31/2019 Cash $200 Accounts receivable 450 Inventory 550 Total Current assets $1,200 Gross plant and equipment $2,200 Accumulated Depreciation (1.000) Total Assets $2,400 Accounts payable $200 Notes Payable (996) 0 Total current liabilities $200 Mortgage payable 600 Total Liabilities $800 Common stock 300 Paid in capital 600 Retained earings 700 Total equity $1,600 Total liabilities and equity $2,400 12/31/2020 $150 425 625 $1,200 $2,600 (1.200) $2,600 $150 100 $250 600 $850 276 624 850 $1,750 $2,600 Problem 2.1 Mitchell Inc. sells smart phone. During the past year, the company's sales were $8 million. The cost of its merchandise sold came to $4 million, cash operating expenses were $800,000, depreciation expense was $200,000, and the firm paid $500,000 in interest on bank loans. Mitchell received $1,000,000 dividends from 15% owned Legacy Company and paid $400,000 dividends to its stockholders. Mitchell had net capital gain of $200,000 during the year. Assume a tax rate of 21%, calculate the Mitchell's tax liabilities. Problem 2.2 Majestic, Inc. sold $10 million of personal computer parts during the past year. The cost of goods sold amounted to $5 million. Operating expenses were $2.5 million, depreciation expense was $500,000, and interest expense was $600,000. Majestic received $1,000,000 dividends from 45% owned C.J. Company and paid $400,000 dividends to stockholders. In addition, Majestic sold 10,000 shares of CJ. Company for $100 per share. These shares were purchased at $65 per share. Determine the Majestic's tax liability. Assume a tax rate of 21%. Problem 2.4 Calculate the free cash flows for Avery Manufacturing Company for the year ended December 31, 2020, from both operating (asset) and financing perspectives. Avery Manufacturing Company Income Statement for Year ended December 31, 2020 Sales $200,000 Cost of Sales 75,000 Gross Profit $125,000 Operating Expenses 50,000 Depreciation 20,000 Operating Income $55,000 Interest expenses 5,000 Taxes 10,500 Preferred stock dividends 10,000 Net income $29,500 Avery Manufacturing Company Comparative Balance Sheet 12/ 31/ 2019 Cash $89,000 Accounts receivable 64,000 Inventory 112,000 Prepaid expenses $10,000 Gross plant and equipment $230,000 Accumulated Depreciation (40,000) Total Assets $473,000 Accounts payable $65,000 Accrued Liabilities 68,000 Mortgage payable 70,000 Preferred stock 0 Common stock 205,000 Retained earnings 45,000 Total liabilities and equity $473,000 12/31/2020 $100,000 70,000 80,000 $10,000 $300,000 (60,000) $500,000 590,000 63,000 0 120,000 160,000 47,000 $500,000