Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937



Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem

FINANCIAL STATEMENTS, CASH FLOW, AND TAXES Laiho Industries’s 2015 and 2016 balance sheets (in thousands of dollars) are shown.

  2016 2015
Cash $102,850 $ 89,725
Accounts receivable 103,365 85,527
Inventories 38,444 34,982
Total current assets $244,659 $210,234
Net fixed assets 67,165 42,430
Total assets $311,824 $252,670
Accounts payable $ 30,761 $ 23,109
Accruals 30,477 22,656
Notes payable 16,717 14,217
Total current liabilities $ 77,955 $ 59,982
Long-term debt 76,264 63,914
Total liabilities $154,219 $123,896
Common stock 100,000 90,000
Retainec earnings 57,605 38,774
Total common equity $157,605 $128,774
Total liabilities and equity $311,824 $252,670
  1. a. Sales for 2016 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depredation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given this Information, construct the firm’s 2016 income statement.
  2. b. Construct the statement of stockholders’ equity for the year ending December 31, 2016, and the 2016 statement of cash flows.
  3. c. Calculate 2015 and 2016 net operating working capital (NOWC) and 2016 free cash flow (FCF).
  4. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effort would this have on taxes paid by the company’s shareholders?
  5. e. Assume that the firm’s after-tax cost of capital is 10.5%. What is the firm’s 2016 EVA?
  6. f. Assume that the firm’s stock price is $22 per share and that at year-end 2016 the firm has 10 million shares outstanding. What is the firm’s MVA at year-end 2016?


Summary Introduction

To prepare: The income statement for company L for 2014.

Financial Statements:

Financial statements refer to those statements, which are prepared by the firm at the end of the accounting period in the particular formats, which are prescribed in accounting to show its financial position.

Income Statement:

A part of financial statements that lists the income and expenses of the business for an accounting year is called income statement. It is prepared at the end of the accounting period to know the profitability of the business.


Income statement in the spreadsheet:


Summary Introduction

To prepare: The statement of stockholders’ equity of Company L for 2016.

Statement of stockholders’ equity:

Statement of stockholders’ equity reports the opening and closing balance of stockholder’s equity with the changes incurred during the accounting period.

Statement of cash flow:

The statement of cash flow is a part of fiscal statements that are comprised in the annual report of a company. It reports the cash generated or used by the business in a specified period.


Summary Introduction

To compute: The net operating working capital for 2015 and 2016 and free cash flow for 2016.

Net operating working capital:

The current assets and current liabilities of active business operations are known as operating current assets and the operating current liabilities respectively. The difference between these two is called net operating working capital.

Free Cash Flow:

Performance of a company’s operations is also evaluated by its cash generation abilities. The term used to depict and report that ability is known as free cash flow. Capital expenditures are deducted from operating cash flow to compute the free cash flow.


Summary Introduction

To analyze: The effect of increased dividend payment on company’s tax liability and stockholders’ liability.

Dividend Payout Ratio:

The ratio that reflects the dividends paid as the proportion of net income earned by a company during a specified time period is called dividend payout ratio.


Summary Introduction

To compute: The economic value added (EVA) for 2016.


Summary Introduction

To compute: The market value added (MVA) for 2016.

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