questions 14-34

You are a financial analyst reviewing a manufacturer of electric engines, the Custom Reactionless Engine Company (NYSE Ticker: CRE). While their financial statements are in the Appendix, for questions 14-16 ignore the Income Statement and assume CRE earned $8 mil in 2019 EBT (i.e. Taxable income). Answer questions 14-16 using this assumption. 14 What would be the Tax Liability (i.e. what do they owe in taxes) (in millions, to two decimal places)? 15 What is the Effective Tax Rate % (to two decimals)? 16 What is the Marginal Tax Rate % (to two decimals)? Statement of Cash Flows 1(2 points each) Using the financial statements for CAT, which are located in the Appendix, prepare a statement of Cash Flows for CAT. Remember: the bottom line "net change in cash & marketable securities" is the same change in cash as we observe on the balance sheet from previous year to current year. If your Net Change in Cash & Marketable Securities don't add up to that figure, then you have made an error somewhere! Check your work to make sure it all sums to the right bottom line number. 17 Operating Activities Net Income 18 + Depreciation 19 + / - Change in Accrued Wages & Taxes 20 +/- Change in Accounts Payable 21 +/- Change in Accounts Receivable 22 +/- Change in Inventory Cash Flows from Operating Activities 23 24 Investing Activities 25 +/- Change in Gross Fixed Assets Cash Flows from Investing Activities 26 Financing Activities 27 28 +/- Change in Notes Payable +/- Change in Long-Term Debt - Dividends Paid Cash flows From Financing Activities 29 30 Net Change in Cash & Marketable Securities Statement of Cash Flows II (7 points each) Using the financial statements for CRE, which are located in the Appendix, prepare a statement of Cash Flows for CRE. Notice that this time the only answers you input are the sub-totals. Operating Activities Net Income + Depreciation +/- Change in Accrued Wages & Taxes +/- Change in Accounts Payable + / - Change in Accounts Receivable +/- Change in Inventory 31 Cash Flows from Operating Activities Investing Activities +/- Change in Gross Fixed Assets Cash Flows from Investing Activities 32 Financing Activities +/- Change in Notes Payable +/- Change in Long-Term Debt - Dividends Paid Cash flows from Financing Activities 33 34 Net Change in Cash & Marketable Securities Custom Reactionless Engine Co (CRE) Financial Statements Custom Reactionless Engine Company Income Statement Income Statement 2018 Sales $ 135 Less: Cost of Goods Sold $ (45) Gross Profit $ 90 Less: Other Operating Expenses $ (34) EBITDA (Earnings Before Interest, Taxes, Depreciation & Amz) $ 56 Less: Depreciation & Amortization $ (8) EBIT (Earnings Before Interest & Taxes) $ 48 Less: Interest $ (9) EBT(Earnings Before Taxes, i.e. Taxable Income) $ 39 Less: Taxes '$ (12) Net Income $ 27 Less: Common Stock Dividends $ (10) Addition to Retained Earnings $ 17 Assets Current Assets Cash Accounts Receivable Inventory Total Custom Reactionless Engine Company Balance Sheet 2018 2017 Liabilities & Equity 2018 2017 $ 33 $ 31 Current Liabilities Accrued Wages & Taxes $ 31 $ 27 $ 22 $ 19 Accounts Payable $ 7 $ 11 $ 93 $ 85 Notes Payable $ 10 $ 10 $ 148 "$ 135 Total $ 48 '$ 48 Fixed Assets $ 84 $ 81 Plant & Equipment Less: Depreciation Net Total Fixed Assets 75 $ 155 $ 140 Long-Term Debt $ (48) $ (40) $ 107 $ 100 Stockholder's Equity Common Stock* Retained Earnings Total Equity $ 255 $ 235 Total Liabilities & Equity $ $ $ $ 75 $ 48 $ 123 $ 255 $ 31 106 235 Total Assets $ Cat-Opia Cat Litter CO (CAT) Financial Statements Cat-Opia Cat Litter Company Income Statement Income Statement Sales Less: Cost of Goods Sold Gross Profit Less: Other Operating Expenses EBITDA (Earnings Before Interest, Taxes, Depreciation & Amz) Less: Depreciation & Amortization EBIT (Earnings Before Interest & Taxes) Less: Interest EBT(Earnings Before Taxes, i.e. Taxable income) Less: Taxes Net Income Less: Common Stock Dividends Addition to Retained Earnings 2018 $ 100 $ (25) $ 75 $ (15) $ 60 $ (15) $ 45 $ (25) $ 20 $ (6) $ 14 $ (5) $ 9 Assets Current Assets Cash Accounts Receivable Inventory Total Cat-Opia Cat Litter Company Balance Sheet 2018 2017 Liabilities & Equity 2018 2017 $ 35 $ 25 Current Liabilities Accrued Wages & Taxes $ 6 $ 5 $ 11 $ 10 Accounts Payable $ 5 $ $ 60 $ 50 Notes Payable $ 3 $ 5 $ 106 '$ 85 $ 14 $ 12 Total Fixed Assets $ $ 90 $ 65 Plant & Equipment Less: Depreciation Net Total Fixed Assets 12 $ 75 $ 45 Long-Term Debt $ (35) $ (20) $ 40 $ 25 Stockholder's Equity Common Stock* Retained Earnings Total Equity $ 146 $ 110 Total Liabilities & Equity 21 $ $ $ $ 12 $ 30 $ 42 $ 146 $ Total Assets 33 110 4 APPENDIX Corporate Tax Tables Plus This Percentage on Anything Over the Base Taxable income Pay This Amount on Base Income $0 $7,500 15% 25% $13,750 34% $22,250 39% $0-50,000 $50,001-75,000 $75,001-$100,000 $100,001-335,000 $335,001-10,000,000 $10,000,001-15,000,000 $15,000,001-18,333,333 Over $18,333,333 34% $113,900 $3,400,000 35% $5,150,000 38% $6,416,667 35%