Build a Model Solution 11/26/2018
Chapter: 2
Key Input Data for Britton String Corp. 2020
(Millions of dollars)
Britton String Corp.: Income Statement 2020
(Millions of dollars)
Sales
$880
Operating costs excluding depreciation
748
EBITDA
$132
Depreciation (Cumberland has no amortization charges)
30
EBIT
$102
22
$80
$20
$24
$36
Dollar value of common stock issued (in millions of dollars)
$36
Britton String Corp: December 31 Balance Sheets
(Millions of dollars)
2020 2019
Assets
Cash and cash equivalents $70 $60
Liabilities and equity
Accounts payable $73 $64
Note to Mike and Phillip: After copying to the file for students,
The input information required for the problem is outlined in the “Key Input Data” section below. Using this data and
the balance sheet above, we constructed the income statement shown below.
a. Britton String Corp. manufactures specialty strings for musical instruments and tennis racquets. Its most
recent sales were $880 million; operating costs (excluding depreciation) were equal to 85% of sales; net fixed
assets were $300 million; depreciation amounted to 10% of net fixed assets; interest expenses were $22
million; the state-plus-federal corporate tax rate was 25%; and it paid 40% of its net income out in dividends.
Given this information, construct its income statement. Also calculate total dividends and the addition to
retained earnings. Report all dollar figures in millions.
b. Britton String’s partial balance sheets follow. Britton issued $36 million of new common stock in the most
recent year. Using this information and the results from part a, fill in the missing values for common stock,
retained earnings, total common equity, and total liabilities and equity.
Accruals $49 $60
Notes payable $30 $39
Always check for balancing (these should be zero): $0.0000 $0.0000
Statement of Cash Flows
(in thousands of dollars)
2020
Operating Activities
Net Income
$60
Adjustments:
Noncash adjustment:
Depreciation
$30
$20
($68)
($11)
$40
($68)
($4)
($72)
Due to changes in working capital:
Financing Activities
Due to change in notes payable
($9)
Due to change in long-term debt
$39
Due to change in common stock
$36
Payment of common dividends
($24)
Net cash provided (used) by financing activities
$42
$10
$60
c. Construct the statement of cash flows for the most recent year.