Question 4 [5 pts]

Consider the following information from a firms income statement for fiscal year 2050:

Sales revenues $865,000

Cost of goods sold $535,000

SG&A expenses $340,000 *SG&A: selling, general, and administrative expenses, including depreciation expenses

In addition, assume the applicable corporate income tax rate is 10% and that the firm pays no tax when its taxable income falls below zero (ignore any tax loss carryforward in case it bothers you). The firm has no debt interest expenses.

1. Determine the firms net income.

Answer (show the steps/calculation toward your answer):

2. Note that depreciation expenses are a noncash expensei.e., no cash outflow is involved. Suppose the firm had reported $170,000 as SG&A by omitting its depreciation. (i) What would its net income be in this scenario? In addition, (ii) determine, without calculating any numbers, whether the cash available at the end of 2050 would increase or decrease.

Answer (show the steps/calculation toward your answer):

Question 5 [5 pts]

The table below summarizes the information obtained from a firms balance sheets for the fiscal year end (FYE) 2050 and 2051:

	2050 (in $mln)	2051 (in $mln)
Assets:
Current assets	1,327	1,438
Noncurrent assets	5,470	6,587
Liabilities & equity:
Current liabilities	530	595
Long-term debt	2,891	3,075

1. Calculate the change in net working capital for FY 2051.

Answer (show the steps/calculation toward your answer):

2. Determine the change in shareholders equity for FY 2051.

Answer (show the steps/calculation toward your answer):

Question 6 [5 pts]

A firms current ratio is 1.2, i.e., CACL=1.2 . Determine what effect the following actions would have on its current ratio.

1. Inventory is purchased with cash.

Answer:

2. Short-term loan is repaid with cash.

Answer:

3. Long-term debt (with the maturity > 1 year) is repaid with cash.

Answer:

4. A customer has paid off a credit account.

Answer:

5. The firm has paid its supplier.

Answer: