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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

FINANCIAL STATEMENTS, CASH FLOW, AND TAXES Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars) are shown.

  2018 2017
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 42,436
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
Retained earnings 57,605 38,774
Total common equity $ 157,605 $ 128,774
Total liabilities and equity $ 311,824 $ 252,670
     
  1. a. Sales for 2018 were $ 455,150,000, and EBITDA was 15% of sales Furthermore, depreciation 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 2018 income statement.
  2. b. Construct the statement of stockholders’ equity for the year ending December 31, 2018, and the 2018 statement of cash flows.
  3. c. Calculate 2017 and 2018 net operating working capital (NOWC) and 2018 free cash flow (FCF). Assume the firm has no excess cash.
  4. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid’ What effect would this have on taxis, 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 2018 EVA?
  6. f. Assume that the firm’s stock price is S22 per share and that at year-end 2018 the firm has 10 million shares outstanding. What is the firm’s MVA at year-end 2018?

a.

Summary Introduction

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

Financial Statements:

It refer to the statements, which are prepared by the firm at the closure of the accounting period in particular formats and are prescribed in the accounting to show its financial position.

Income Statement:

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

Explanation

Given information:

Sales is $455,150,000 for the year 2018.

EBITDA is 15% on sales.

11% of depreciation and amortization on net fixed asset.

Interest is $8,575,000.

40% tax.

40% of the divided on net income...

b.

Summary Introduction

To prepare: The statement of stockholders’ equity of Company L for 2018.

Statement of stockholders’ equity:

The 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 those are comprised in the yearly report of a company. It reports the cash generated or used by the business in a specified period.

c.

Summary Introduction

To compute: The net operating working capital for 2017 and 2018, and the free cash flow for 2018.

The net operating working capital:

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

Free Cash Flow:

The 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 the free cash flow. Capital expenditures are deducted from operating cash flow to compute the free cash flow.

d.

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 the dividend payout ratio.

e.

Summary Introduction

To compute: The economic value added (EVA) for 2018.

f.

Summary Introduction

To compute: The market value added (MVA) for 2018.

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