Finance Chapter 2 4 dividends paid to preferred and common stockholders will not change

61. Corporate Taxes Suppose that in addition to the $300,000 of taxable income from

operations, Liam’s Burgers, Inc. received $25,000 of interest on state-issued bonds and $50,000

of dividends on common stock it owns in Sodas, Inc.

Using the tax schedule in Table 2.3 what is Liam’s income tax liability?

What are Liam’s average and marginal tax rates on total taxable income?

62. Statement of Cash Flows Fina’s Faucets, Inc. has net cash flows from operating

activities for the last year of $17 million. The income statement shows that net income is $15

million and depreciation expense is $6 million. During the year, the change in inventory on the

balance sheet was an increase of $4 million, change in accrued wages and taxes was an increase

of $1 million and change in accounts payable was an increase of $1 million. At the beginning of

the year the balance of accounts receivable was $5 million. What was the end of year balance for

accounts receivable?

63. Statement of Cash Flows Zoe’s Dog Biscuits, Inc. has net cash flows from operating

activities for the last year of $226 million. The income statement shows that net income is $150

million and depreciation expense is $85 million. During the year, the change in inventory on the

balance sheet was an increase of $14 million, change in accrued wages and taxes was an

increase of $15 million and change in accounts payable was an increase of $10 million. At the

beginning of the year the balance of accounts receivable was $45 million. What was the end of

year balance for accounts receivable?

64. Statement of Cash Flows Nickolas’s Nut Farms, Inc. has net cash flows from operating

activities for the last year of $25 million. The income statement shows that net income is $15

million and depreciation expense is $6 million. During the year, the change in inventory on the

balance sheet was a decrease of $4 million, change in accrued wages and taxes was a decrease

of $1 million and change in accounts payable was a decrease of $1 million. At the beginning of

the year the balance of accounts receivable was $5 million. What was the end of year balance for

accounts receivable?

65. Statement of Cash Flows Crispy Corporation has net cash flow from financing activities

for the last year of $20 million. The company paid $5 million in dividends last year. During the

year, the change in notes payable on the balance sheet was an increase of $2 million, and change

in common and preferred stock was an increase of $3 million. The end of year balance for long–

term debt was $45 million. What was their beginning of year balance for long-term debt?

66. Statement of Cash Flows Full Moon Productions Inc. has net cash flow from financing

activities for the last year of $105 million. The company paid $15 million in dividends last year.

During the year, the change in notes payable on the balance sheet was an increase of $40

million, and change in common and preferred stock was an increase of $50 million. The end of

year balance for long-term debt was $50 million. What was their beginning of year balance for

long-term debt?

67. Statement of Cash Flows Café Creations Inc. has net cash flow from financing activities

for the last year of $25 million. The company paid $15 million in dividends last year. During the

year, the change in notes payable on the balance sheet was a decrease of $40 million, and

change in common and preferred stock was an increase of $50 million. The end of year balance

for long-term debt was $40 million. What was their beginning of year balance for long-term

debt?

68. Free Cash Flow The 2010 income statement for Pete’s Pumpkins shows that

depreciation expense is $250 million, EBIT is $500 million, EBT is $320 million, and the tax rate is

30 percent. At the beginning of the year, the balance of gross fixed assets was $1,600 million and

net operating working capital was $640 million. At the end of the year gross fixed assets was

$2,000 million. Pete’s free cash flow for the year was $630 million. What is their end of year

balance for net operating working capital?

69. Free Cash Flow The 2013 income statement for Lou’s Shoes shows that depreciation

expense is $2 million, EBIT is $5 million, EBT is $3 million, and the tax rate is 40 percent. At the

beginning of the year, the balance of gross fixed assets was $16 million and net operating

working capital was $6 million. At the end of the year gross fixed assets was $20 million. Lou’s

free cash flow for the year was $4 million. What is their end of year balance for net operating

working capital?

70. Free Cash Flow The 2013 income statement for Paige’s Purses shows that depreciation

expense is $10 million, EBIT is $25 million, EBT is $15 million, and the tax rate is 30 percent. At

the beginning of the year, the balance of gross fixed assets was $80 million and net operating

working capital was $30 million. At the end of the year gross fixed assets was $100 million.

Paige’s free cash flow for the year was $20 million. What is their end of year balance for net

operating working capital?

71. Free Cash Flow The 2013 income statement for Betty’s Barstools shows that

depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million. At the end

of the year, the balance of gross fixed assets was $510 million. The increase in net operating

working capital during the year was $94 million. Betty’s free cash flow for the year was $625

million. What was the beginning of year balance for gross fixed assets?

72. Free Cash Flow The 2013 income statement for John’s Gym shows that depreciation

expense is $20 million, EBIT is $80 million, and taxes are $24 million. At the end of the year, the

balance of gross fixed assets was $102 million. The increase in net operating working capital

during the year was $18 million. John’s free cash flow for the year was $41 million. What was the

beginning of year balance for gross fixed assets?

73. Statement of Retained Earnings Bike and Hike, Inc. started the year with a balance of

retained earnings of $100 million and ended the year with retained earnings of $128 million. The

company paid dividends of $9 million to the preferred stock holders and $22 million to common

stock holders. What was Bike and Hike’s net income for the year?

74. Statement of Retained Earnings Soccer Starz, Inc. started the year with a balance of

retained earnings of $25 million and ended the year with retained earnings of $32 million. The

company paid dividends of $2 million to the preferred stock holders and $6 million to common

stock holders. What was Soccer Starz’s net income for the year?

75. Statement of Retained Earnings Jamaican Ice Cream Corp. started the year with a

balance of retained earnings of $100 million. The company reported net income for the year of

$45 million, paid dividends of $2 million to the preferred stock holders and $15 million to common

stock holders. What is Jamaican Ice Cream’s end of year balance in retained earnings?

76. Income Statement The following is the 2013 income statement for Lamps, Inc.

The CEO of Lamps wants the company to earn a net income of $12 million in 2014. Cost of goods

sold is expected to be 75 percent of net sales, depreciation expense is not expected to change,

interest expense is expected to increase to $4 million, and the firm’s tax rate will be 40 percent.

What is the net sales needed to produce net income of $12 million?

77. Income Statement You have been given the following information for Halle’s Holiday

Store Corp. for the year 2013:

Net sales = $50,000,000;

Cost of goods sold = $35,000,000;

Addition to retained earnings = $2,000,000;

Dividends paid to preferred and common stockholders = $3,000,000;

Interest expense = $3,000,000.

The firm’s tax rate is 30 percent.

In 2014, net sales are expected to increase by $5 million,

cost of goods sold is expected to be 65 percent of net sales,

expensed depreciation is expected to be the same as in 2013,

interest expense is expected to be $2,500,000,

the tax rate is expected to be 30 percent of EBT, and

dividends paid to preferred and common stockholders will not change.

What is the addition to retained earnings expected in 2014?

78. Free Cash Flow Martha’s Moving Van 4U, Inc. had free cash flow during 2013 of $1

million, EBIT of $30 million, tax expense of $8 million, and depreciation of $4 million. Using this

information, what was Martha’s Accounts Payable ending balance in 2013?