Bundle: Financial Management: Theory and Practice, Loose-leaf Version, 15th + Aplia, 1 term Printed Access Card
15th Edition
ISBN: 9781337130295
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
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Chapter 12, Problem 3P
Summary Introduction
To determine: Additional funds needed and the reason why it is different from the previous problem.
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Question 3: Study the following financial statements.
What was NOWC for 2017 and 2018? Show the calculation and circle your answer. Assume that all
cash is excess cash; i.e., this cash is not needed for operating purposes.
Calculate the Free Cash Flow in 2018. Show the calculation and circle your answer.
What was 2018 EVA? Show the calculation and circle your answer. Assume that its after-tax cost of
capital is 10%.
What was MVA at the year-end 2018? Show the calculation and circle your answer. (Note: Share
Price is $25)
(Ignore income taxes in this problem.) Your Company is considering an investment that has the following data:
Year
1
2
3.
4.
Investment
$20,000
Cash inflow
$2,000
$2,000
$5,000
$4,000
$60,000
In what year does the payback period for this investment occur?
O Year 2.
O Year 3.
Year 4.
Year 5.
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate
of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices
that apply.)
A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as a capital expense.
B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as an operating expense.
C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
Chapter 12 Solutions
Bundle: Financial Management: Theory and Practice, Loose-leaf Version, 15th + Aplia, 1 term Printed Access Card
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