公司理财第九版课后习题答案英文Word

1SolutionsManualCorporateFinanceRoss,Westerfield,andJaffe9theditionCHAPTER1INTRODUCTIONTOCORPORATEFINANCEAnswerstoConceptQuestions1.Inthecorporateformofownership,theshareholdersaretheownersofthefirm.Theshareholderselectthedirectorsofthecorporation,whointurnappointthefirm‘smanagement.Thisseparationofownershipfromcontrolinthecorporateformoforganizationiswhatcausesagencyproblemstoexist.Managementmayactinitsownorsomeoneelse‘sbestinterests,ratherthanthoseoftheshareholders.Ifsucheventsoccur,theymaycontradictthegoalofmaximizingthesharepriceoftheequityofthefirm.22.Suchorganizationsfrequentlypursuesocialorpoliticalmissions,somanydifferentgoalsareconceivable.Onegoalthatisoftencitedisrevenueminimization;i.e.,providewhatevergoodsandservicesareofferedatthelowestpossiblecosttosociety.Abetterapproachmightbetoobservethatevenanot-for-profitbusinesshasequity.Thus,oneansweristhattheappropriategoalistomaximizethevalueoftheequity.3.Presumably,thecurrentstockvaluereflectstherisk,timing,andmagnitudeofallfuturecashflows,bothshort-termandlong-term.Ifthisiscorrect,thenthestatementisfalse.4.Anargumentcanbemadeeitherway.Attheoneextreme,wecouldarguethatinamarketeconomy,allofthesethingsarepriced.Thereisthusanoptimallevelof,forexample,ethicaland/orillegalbehavior,andtheframeworkofstockvaluationexplicitlyincludesthese.Attheotherextreme,wecouldarguethatthesearenon-economicphenomenaandarebesthandledthroughthepoliticalprocess.Aclassic(andhighlyrelevant)thoughtquestionthatillustratesthisdebategoessomethinglikethis:―Afirmhasestimatedthatthecostofimprovingthesafetyofoneofitsproductsis$30million.However,thefirmbelievesthatimprovingthesafetyoftheproductwillonlysave$20millioninproductliabilityclaims.Whatshouldthefirmdo‖5.Thegoalwillbethesame,butthebestcourseofactiontowardthatgoalmaybedifferentbecauseofdifferingsocial,political,andeconomicinstitutions.6.Thegoalofmanagementshouldbetomaximizethesharepriceforthecurrentshareholders.Ifmanagementbelievesthatitcanimprovetheprofitabilityofthefirmsothatthesharepricewillexceed$35,thentheyshouldfighttheofferfromtheoutsidecompany.Ifmanagementbelievesthatthisbidderorotherunidentifiedbidderswillactuallypaymorethan$35persharetoacquirethecompany,thentheyshouldstillfighttheoffer.However,ifthecurrentmanagementcannotincreasethevalueofthefirmbeyondthebidprice,andnootherhigherbidscomein,thenmanagementisnotactingintheinterestsoftheshareholdersbyfightingtheoffer.Sincecurrentmanagersoftenlosetheirjobswhenthecorporationisacquired,poorlymonitoredmanagershaveanincentivetofightcorporatetakeoversinsituationssuchasthis.37.Wewouldexpectagencyproblemstobelesssevereinothercountries,primarilyduetotherelativelysmallpercentageofindividualownership.Fewerindividualownersshouldreducethenumberofdiverseopinionsconcerningcorporategoals.Thehighpercentageofinstitutionalownershipmightleadtoahigherdegreeofagreementbetweenownersandmanagersondecisionsconcerningriskyprojects.Inaddition,institutionsmaybebetterabletoimplementeffectivemonitoringmechanismsonmanagersthancanindividualowners,basedontheinstitutions‘deeperresourcesandexperienceswiththeirownmanagement.8.TheincreaseininstitutionalownershipofstockintheUnitedStatesandthegrowingactivismoftheselargeshareholdergroupsmayleadtoareductioninagencyproblemsforU.S.corporationsandamoreefficientmarketforcorporatecontrol.However,thismaynotalwaysbethecase.Ifthemanagersofthemutualfundorpensionplanarenotconcernedwiththeinterestsoftheinvestors,theagencyproblemcouldpotentiallyremainthesame,orevenincreasesincethereisthepossibilityofagencyproblemsbetweenthefundanditsinvestors.9.HowmuchistoomuchWhoisworthmore,RayIraniorTigerWoodsThesimplestansweristhatthereisamarketforexecutivesjustasthereisforalltypesoflabor.Executivecompensationisthepricethatclearsthemarket.Thesameistrueforathletesandperformers.Havingsaidthat,oneaspectofexecutivecompensationdeservescomment.Aprimaryreasonexecutivecompensationhasgrownsodramaticallyisthatcompanieshaveincreasinglymovedtostock-basedcompensation.Suchmovementisobviouslyconsistentwiththeattempttobetteralignstockholderandmanagementinterests.Inrecentyears,stockpriceshavesoared,somanagementhascleanedup.Itissometimesarguedthatmuchofthisrewardissimplyduetorisingstockpricesingeneral,notmanagerialperformance.Perhapsinthefuture,executivecompensationwillbedesignedtorewardonlydifferentialperformance,i.e.,stockpriceincreasesinexcessofgeneralmarketincreases.10.Maximizingthecurrentsharepriceisthesameasmaximizingthefuturesharepriceatanyfutureperiod.Thevalueofashareofstockdependsonallofthefuturecashflowsofcompany.Anotherwaytolookatthisisthat,barringlargecashpaymentstoshareholders,theexpectedpriceofthestockmustbehigherinthefuturethanitistoday.Whowouldbuyastockfor$100todaywhenthesharepriceinoneyearisexpectedtobe$804CHAPTER2FINANCIALSTATEMENTSANDCASHFLOWAnswerstoConceptsReviewandCriticalThinkingQuestions1.True.Everyassetcanbeconvertedtocashatsomeprice.However,whenwearereferringtoaliquidasset,theaddedassumptionthattheassetcanbequicklyconvertedtocashatornearmarketvalueisimportant.2.Therecognitionandmatchingprinciplesinfinancialaccountingcallforrevenues,andthecostsassociatedwithproducingthoserevenues,tobe―booked‖whentherevenueprocessisessentiallycomplete,notnecessarilywhenthecashiscollectedorbillsarepaid.Notethatthiswayisnotnecessarilycorrect;it‘sthewayaccountantshavechosentodoit.3.Thebottomlinenumbershowsthechangeinthecashbalanceonthebalancesheet.Assuch,itisnotausefulnumberforanalyzingacompany.4.Themajordifferenceisthetreatmentofinterestexpense.Theaccountingstatementofcashflowstreatsinterestasanoperatingcashflow,whilethefinancialcashflowstreatinterestasafinancingcashflow.Thelogicoftheaccountingstatementofcashflowsisthatsinceinterestappearsontheincomestatement,whichshowstheoperationsfortheperiod,itisanoperatingcashflow.Inreality,interestisafinancingexpense,whichresultsfromthecompany‘schoiceofdebtandequity.Wewillhavemoretosayaboutthisinalaterchapter.Whencomparingthetwocashflowstatements,thefinancialstatementofcashflowsisamoreappropriatemeasureofthecompany‘sperformancebecauseofitstreatmentofinterest.5.Marketvaluescanneverbenegative.Imagineashareofstocksellingfor–$20.Thiswouldmeanthatifyouplacedanorderfor100shares,youwouldgetthestockalongwithacheckfor$2,000.HowmanysharesdoyouwanttobuyMoregenerally,becauseofcorporateandindividualbankruptcylaws,networthforapersonoracorporationcannotbenegative,implyingthatliabilitiescannotexceedassetsinmarketvalue.6.Forasuccessfulcompanythatisrapidlyexpanding,forexample,capitaloutlayswillbelarge,possiblyleadingtonegativecashflowfromassets.Ingeneral,whatmattersiswhetherthemoneyisspentwisely,notwhethercashflowfromassetsispositiveornegative.7.It‘sprobablynotagoodsignforanestablishedcompanytohavenegativecashflowfromoperations,butitwouldbefairlyordinaryforastart-up,soitdepends.8.Forexample,ifacompanyweretobecomemoreefficientininventorymanagement,theamountofinventoryneededwoulddecline.Thesamemightbetrueifthecompanybecomesbetteratcollectingitsreceivables.Ingeneral,anythingthatleadstoadeclineinendingNWCrelativetobeginningwouldhavethiseffect.Negativenetcapitalspendingwouldmeanmorelong-livedassetswereliquidatedthanpurchased.59.Ifacompanyraisesmoremoneyfromsellingstockthanitpaysindividendsinaparticularperiod,itscashflowtostockholderswillbenegative.Ifacompanyborrowsmorethanitpaysininterestandprincipal,itscashflowtocreditorswillbenegative.10.Theadjustmentsdiscussedwerepurelyaccountingchanges;theyhadnocashflowormarketvalueconsequencesunlessthenewaccountinginformationcausedstockholderstorevaluethederivatives.SolutionstoQuestionsandProblemsNOTE:Allend-of-chapterproblemsweresolvedusingaspreadsheet.Manyproblemsrequiremultiplesteps.Duetospaceandreadabilityconstraints,whentheseintermediatestepsareincludedinthissolutionsmanual,roundingmayappeartohaveoccurred.However,thefinalanswerforeachproblemisfoundwithoutroundingduringanystepintheproblem.Basic1.Tofindowners‘equity,wemustconstructabalancesheetasfollows:BalanceSheetCA$5,300CL$3,900NFA26,000LTD14,200OETA$31,300TL&OE$31,300Weknowthattotalliabilitiesandowners‘equity(TL&OE)mustequaltotalassetsof$31,300.WealsoknowthatTL&OEisequaltocurrentliabilitiespluslong-termdebtplusowner‘sequity,soowner‘sequityis:OE=$31,300–14,200–3,900=$13,200NWC=CA–CL=$5,300–3,900=$1,4002.Theincomestatementforthecompanyis:IncomeStatementSales$493,000Costs210,000Depreciation35,000EBIT$248,000Interest19,000EBT$229,000Taxes80,150Netincome$148,8506Oneequationfornetincomeis:Netincome=Dividends+AdditiontoretainedearningsRearranging,weget:Additiontoretainedearnings=Netincome–DividendsAdditiontoretainedearnings=$148,850–50,000Additiontoretainedearnings=$98,8503.Tofindthebookvalueofcurrentassets,weuse:NWC=CA–CL.Rearrangingtosolveforcurrentassets,weget:CA=NWC+CL=$800,000+2,100,000=$2,900,000Themarketvalueofcurrentassetsandnetfixedassetsisgiven,so:BookvalueCA=$2,900,000MarketvalueCA=$2,800,000BookvalueNFA=$5,000,000MarketvalueNFA=$6,300,000Bookvalueassets=$7,900,000Marketvalueassets=$9,100,0004.Taxes=0.15($50K)+0.25($25K)+0.34($25K)+0.39($246K–100K)Taxes=$79,190Theaveragetaxrateisthetotaltaxpaiddividedbynetincome,so:Averagetaxrate=$79,190/$246,000Averagetaxrate=32.19%Themarginaltaxrateisthetaxrateonthenext$1ofearnings,sothemarginaltaxrate=39%.5.TocalculateOCF,wefirstneedtheincomestatement:IncomeStatementSales$14,900Costs5,800Depreciation1,300EBIT$7,800Interest780Taxableincome$7,020Taxes2,808Netincome$4,212OCF=EBIT+Depreciation–TaxesOCF=$7,800+1,300–2,808OCF=$6,2926.Netcapitalspending=NFAend–NFAbeg+DepreciationNetcapitalspending=$1,730,000–1,650,000+284,000Netcapitalspending=$364,00077.Thelong-termdebtaccountwillincreaseby$10million,theamountofthenewlong-termdebtissue.Sincethecompanysold10millionnewsharesofstockwitha$1parvalue,thecommonstockaccountwillincreaseby$10million.Thecapitalsurplusaccountwillincreaseby$33million,thevalueofthenewstocksoldaboveitsparvalue.Sincethecompanyhadanetincomeof$9million,andpaid$2millionindividends,theadditiontoretainedearningswas$7million,whichwillincreasetheaccumulatedretainedearningsaccount.So,thenewlong-termdebtandstockholders‘equityportionofthebalancesheetwillbe:Long-termdebt$82,000,000Totallong-termdebt$82,000,000ShareholdersequityPreferredstock$9,000,000Commonstock($1parvalue)30,000,000Accumulatedretainedearnings104,000,000Capitalsurplus76,000,000Totalequity$219,000,000TotalLiabilities&Equity$301,000,0008.Cashflowtocreditors=Interestpaid–NetnewborrowingCashflowtocreditors=$118,000–(LTDend–LTDbeg)Cashflowtocreditors=$118,000–($1,390,000–1,340,000)Cashflowtocreditors=$118,000–50,000Cashflowtocreditors=$68,0009.Cashflowtostockholders=Dividendspaid–NetnewequityCashflowtostockholders=$385,000–[(Commonend+APISend)–(Commonbeg+APISbeg)]Cashflowtostockholders=$385,000–[($450,000+3,050,000)–($430,000+2,600,000)]Cashflowtostockholders=$385,000–($3,500,000–3,030,000)Cashflowtostockholders=–$85,000Note,APISistheadditionalpaid-insurplus.10.Cashflowfromassets=Cashflowtocreditors+Cashflowtostockholders=$68,000–85,000=–$17,000Cashflowfromassets=–$17,000=OCF–ChangeinNWC–Netcapitalspending–$17,000=OCF–(–$69,000)–875,000Operatingcashflow=–$17,000–69,000+875,000Operatingcashflow=$789,0008Intermediate11.a.Theaccountingstatementofcashflowsexplainsthechangeincashduringtheyear.Theaccountingstatementofcashflowswillbe:StatementofcashflowsOperationsNetincome$105Depreciation90Changesinothercurrentassets(55)Accountspayable(10)Totalcashflowfromoperations$170InvestingactivitiesAcquisitionoffixedassets$(140)Totalcashflowfrominvestingactivities$(140)FinancingactivitiesProceedsoflong-termdebt$30Dividends(45)Totalcashflowfromfinancingactivities($15)Changeincash(onbalancesheet)$15b.ChangeinNWC=NWCend–NWCbeg=(CAend–CLend)–(CAbeg–CLbeg)=[($50+155)–85]–[($35+140)–95)=$120–80=$40c.Tofindthecashflowgeneratedbythefirm‘sassets,weneedtheoperatingcashflow,andthecapitalspending.So,calculatingeachofthese,wefind:OperatingcashflowNetincome$105Depreciation90Operatingcashflow$195NotethatwecancalculateOCFinthismannersincetherearenotaxes.9CapitalspendingEndingfixedassets$340Beginningfixedassets(290)Depreciation90Capitalspending$140Nowwecancalculatethecashflowgeneratedbythefirm‘sassets,whichis:CashflowfromassetsOperatingcashflow$195Capitalspending(140)ChangeinNWC(40)Cashflowfromassets$1512.Withtheinformationprovided,thecashflowsfromthefirmarethecapitalspendingandthechangeinnetworkingcapital,so:CashflowsfromthefirmCapitalspending$(15,000)AdditionstoNWC(1,500)Cashflowsfromthefirm$(16,500)Andthecashflowstotheinvestorsofthefirmare:CashflowstoinvestorsofthefirmSaleoflong-termdebt(19,000)Saleofcommonstock(3,000)Dividendspaid19,500Cashflowstoinvestorsofthefirm$(2,500)1013.a.Theinterestexpenseforthecompanyistheamountofdebttimestheinterestrateonthedebt.So,theincomestatementforthecompanyis:IncomeStatementSales$1,200,000Costofgoodssold450,000Sellingcosts225,000Depreciation110,000EBIT$415,000Interest81,000Taxableincome$334,000Taxes116,900Netincome$217,100b.Andtheoperatingcashflowis:OCF=EBIT+Depreciation–TaxesOCF=$415,000+110,000–116,900OCF=$408,10014.TofindtheOCF,wefirstcalculatenetincome.IncomeStatementSales$167,000Costs91,000Depreciation8,000Otherexpenses5,400EBIT$62,600Interest11,000Taxableincome$51,600Taxes18,060Netincome$33,540Dividends$9,500AdditionstoRE$24,040a.OCF=EBIT+Depreciation–TaxesOCF=$62,600+8,000–18,060OCF=$52,540b.CFC=Interest–NetnewLTDCFC=$11,000–(–$7,100)CFC=$18,100Notethatthenetnewlong-termdebtisnegativebecausethecompanyrepaidpartofitslong-termdebt.c.CFS=Dividends–NetnewequityCFS=$9,500–7,250CFS=$2,25011d.WeknowthatCFA=CFC+CFS,so:CFA=$18,100+2,250=$20,350CFAisalsoequaltoOCF–Netcapitalspending–ChangeinNWC.WealreadyknowOCF.Netcapitalspendingisequalto:Netcapitalspending=IncreaseinNFA+DepreciationNetcapitalspending=$22,400+8,000Netcapitalspending=$30,400Nowwecanuse:CFA=OCF–Netcapitalspending–ChangeinNWC$20,350=$52,540–30,400–ChangeinNWC.SolvingforthechangeinNWCgives$1,790,meaningthecompanyincreaseditsNWCby$1,790.15.Thesolutiontothisquestionworkstheincomestatementbackwards.Startingatthebottom:Netincome=Dividends+Additiontoret.earningsNetincome=$1,530+5,300Netincome=$6,830Now,lookingattheincomestatement:EBT–(EBT×Taxrate)=NetincomeRecognizethatEBT×taxrateissimplythecalculationfortaxes.SolvingthisforEBTyields:EBT=NI/(1–Taxrate)EBT=$6,830/(1–0.65)EBT=$10,507.69Nowwecancalculate:EBIT=EBT+InterestEBIT=$10,507.69+1,900EBIT=$12,407.69Thelaststepistouse:EBIT=Sales–Costs–Depreciation$12,407.69=$43,000–27,500–DepreciationDepreciation=$3,092.31Solvingfordepreciation,wefindthatdepreciation=$3,092.311216.Thebalancesheetforthecompanylookslikethis:BalanceSheetCash$183,000Accountspayable$465,000Accountsreceivable138,000Notespayable145,000Inventory297,000Currentliabilities$610,000Currentassets$618,000Long-termdebt1,550,000Totalliabilities$2,160,000Tangiblenetfixedassets3,200,000Intangiblenetfixedassets695,000CommonstockAccumulatedret.earnings1,960,000Totalassets$4,513,000Totalliab.&owners‘equity$4,513,000Totalliabilitiesandowners‘equityis:TL&OE=Totaldebt+Commonstock+AccumulatedretainedearningsSolvingforthisequationforequitygivesus:Commonstock=$4,513,000–1,960,000–2,160,000Commonstock=$393,00017.Themarketvalueofshareholders‘equitycannotbenegative.Anegativemarketvalueinthiscasewouldimplythatthecompanywouldpayyoutoownthestock.Themarketvalueofshareholders‘equitycanbestatedas:Shareholders‘equity=Max[(TA–TL),0].So,ifTAis$9,700,equityisequalto$800,andifTAis$6,800,equityisequalto$0.Weshouldnoteherethatwhilethemarketvalueofequitycannotbenegative,thebookvalueofshareholders‘equitycanbenegative.18.a.TaxesGrowth=0.15($50K)+0.25($25K)+0.34($3K)=$14,770TaxesIncome=0.15($50K)+0.25($25K)+0.34($25K)+0.39($235K)+0.34($7.465M)=$2,652,000b.Eachfirmhasamarginaltaxrateof34%onthenext$10,000oftaxableincome,despitetheirdifferentaveragetaxrates,sobothfirmswillpayanadditional$3,400intaxes.19.IncomeStatementSales$740,000COGS610,000A&Sexpenses100,000Depreciation140,000EBIT($115,000)Interest70,000Taxableincome($185,000)Taxes(35%)0a.Netincome($185,000)13b.OCF=EBIT+Depreciation–TaxesOCF=($115,000)+140,000–0OCF=$25,000c.Netincomewasnegativebecauseofthetaxdeductibilityofdepreciationandinterestexpense.However,theactualcashflowfromoperationswaspositivebecausedepreciationisanon-cashexpenseandinterestisafinancingexpense,notanoperatingexpense.20.Afirmcanstillpayoutdividendsifnetincomeisnegative;itjusthastobesurethereissufficientcashflowtomakethedividendpayments.ChangeinNWC=Netcapitalspending=Netnewequity=0.(Given)Cashflowfromassets=OCF–ChangeinNWC–NetcapitalspendingCashflowfromassets=$25,000–0–0=$25,000Cashflowtostockholders=Dividends–NetnewequityCashflowtostockholders=$30,000–0=$30,000Cashflowtocreditors=Cashflowfromassets–CashflowtostockholdersCashflowtocreditors=$25,000–30,000Cashflowtocreditors=–$5,000Cashflowtocreditorsisalso:Cashflowtocreditors=Interest–NetnewLTDSo:NetnewLTD=Interest–CashflowtocreditorsNetnewLTD=$70,000–(–5,000)NetnewLTD=$75,00021.a.Theincomestatementis:IncomeStatementSales$15,300Costofgoodsold10,900Depreciation2,100EBIT$2,300Interest520Taxableincome$1,780Taxes712Netincome$1,068b.OCF=EBIT+Depreciation–TaxesOCF=$2,300+2,100–712OCF=$3,68814c.ChangeinNWC=NWCend–NWCbeg=(CAend–CLend)–(CAbeg–CLbeg)=($3,950–1,950)–($3,400–1,900)=$2,000–1,500=$500Netcapitalspending=NFAend–NFAbeg+Depreciation=$12,900–11,800+2,100=$3,200CFA=OCF–ChangeinNWC–Netcapitalspending=$3,688–500–3,200=–$12Thecashflowfromassetscanbepositiveornegative,sinceitrepresentswhetherthefirmraisedfundsordistributedfundsonanetbasis.Inthisproblem,eventhoughnetincomeandOCFarepositive,thefirminvestedheavilyinbothfixedassetsandnetworkingcapital;ithadtoraiseanet$12infundsfromitsstockholdersandcreditorstomaketheseinvestments.d.Cashflowtocreditors=Interest–NetnewLTD=$520–0=$520Cashflowtostockholders=Cashflowfromassets–Cashflowtocreditors=–$12–520=–$532Wecanalsocalculatethecashflowtostockholdersas:Cashflowtostockholders=Dividends–NetnewequitySolvingfornetnewequity,weget:Netnewequity=$500–(–532)=$1,032Thefirmhadpositiveearningsinanaccountingsense(NI>0)andhadpositivecashflowfromoperations.Thefirminvested$500innewnetworkingcapitaland$3,200innewfixedassets.Thefirmhadtoraise$12fromitsstakeholderstosupportthisnewinvestment.Itaccomplishedthisbyraising$1,032intheformofnewequity.Afterpayingout$500ofthisintheformofdividendstoshareholdersand$520intheformofinteresttocreditors,$12waslefttomeetthefirm‘scashflowneedsforinvestment.22.a.Totalassets2009=$780+3,480=$4,260Totalliabilities2009=$318+1,800=$2,118Owners‘equity2009=$4,260–2,118=$2,142Totalassets2010=$846+4,080=$4,926Totalliabilities2010=$348+2,064=$2,412Owners‘equity2010=$4,926–2,412=$2,51415b.NWC2009=CA09–CL09=$780–318=$462NWC2010=CA10–CL10=$846–348=$498ChangeinNWC=NWC10–NWC09=$498–462=$36c.Wecancalculatenetcapitalspendingas:Netcapitalspending=Netfixedassets2010–Netfixedassets2009+DepreciationNetcapitalspending=$4,080–3,480+960Netcapitalspending=$1,560So,thecompanyhadanetcapitalspendingcashflowof$1,560.Wealsoknowthatnetcapitalspendingis:Netcapitalspending=Fixedassetsbought–Fixedassetssold$1,560=$1,800–FixedassetssoldFixedassetssold=$1,800–1,560=$240Tocalculatethecashflowfromassets,wemustfirstcalculatetheoperatingcashflow.Theoperatingcashflowiscalculatedasfollows(youcanalsoprepareatraditionalincomestatement):EBIT=Sales–Costs–DepreciationEBIT=$10,320–4,980–960EBIT=$4,380EBT=EBIT–InterestEBT=$4,380–259EBT=$4,121Taxes=EBT.35Taxes=$4,121.35Taxes=$1,442OCF=EBIT+Depreciation–TaxesOCF=$4,380+960–1,442OCF=$3,898Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending.Cashflowfromassets=$3,898–36–1,560Cashflowfromassets=$2,302d.Netnewborrowing=LTD10–LTD09Netnewborrowing=$2,064–1,800Netnewborrowing=$264Cashflowtocreditors=Interest–NetnewLTDCashflowtocreditors=$259–264Cashflowtocreditors=–$5Netnewborrowing=$264=Debtissued–DebtretiredDebtretired=$360–264=$961623.BalancesheetasofDec.31,2009Cash$2,739Accountspayable$2,877Accountsreceivable3,626Notespayable529Inventory6,447Currentliabilities$3,406Currentassets$12,812Long-termdebt$9,173Netfixedassets$22,970Owners'equity$23,203Totalassets$35,782Totalliab.&equity$35,782BalancesheetasofDec.31,2010Cash$2,802Accountspayable$2,790Accountsreceivable4,085Notespayable497Inventory6,625Currentliabilities$3,287Currentassets$13,512Long-termdebt$10,702Netfixedassets$23,518Owners'equity$23,041Totalassets$37,030Totalliab.&equity$37,0302009IncomeStatement2010IncomeStatementSales$5,223.00Sales$5,606.00COGS1,797.00COGS2,040.00Otherexpenses426.00Otherexpenses356.00Depreciation750.00Depreciation751.00EBIT$2,250.00EBIT$2,459.00Interest350.00Interest402.00EBT$1,900.00EBT$2,057.00Taxes646.00Taxes699.38Netincome$1,254.00Netincome$1,357.62Dividends$637.00Dividends$701.00AdditionstoRE617.00AdditionstoRE656.6224.OCF=EBIT+Depreciation–TaxesOCF=$2,459+751–699.38OCF=$2,510.62ChangeinNWC=NWCend–NWCbeg=(CA–CL)end–(CA–CL)begChangeinNWC=($13,512–3,287)–($12,812–3,406)ChangeinNWC=$819Netcapitalspending=NFAend–NFAbeg+DepreciationNetcapitalspending=$23,518–22,970+751Netcapitalspending=$1,29917Cashflowfromassets=OCF–ChangeinNWC–NetcapitalspendingCashflowfromassets=$2,510.62–819–1,299Cashflowfromassets=$396.62Cashflowtocreditors=Interest–NetnewLTDNetnewLTD=LTDend–LTDbegCashflowtocreditors=$402–($10,702–9,173)Cashflowtocreditors=–$1,127Netnewequity=Commonstockend–CommonstockbegCommonstock+Retainedearnings=Totalowners‘equityNetnewequity=(OE–RE)end–(OE–RE)begNetnewequity=OEend–OEbeg+REbeg–REendREend=REbeg+AdditionstoRENetnewequity=OEend–OEbeg+REbeg–(REbeg+AdditionstoRE)=OEend–OEbeg–AdditionstoRENetnewequity=$23,041–23,203–656.62=–$818.62Cashflowtostockholders=Dividends–NetnewequityCashflowtostockholders=$701–(–$818.62)Cashflowtostockholders=$1,519.62Asacheck,cashflowfromassetsis$396.62.Cashflowfromassets=Cashflowfromcreditors+CashflowtostockholdersCashflowfromassets=–$1,127+1,519.62Cashflowfromassets=$392.62Challenge25.Wewillbeginbycalculatingtheoperatingcashflow.First,weneedtheEBIT,whichcanbecalculatedas:EBIT=Netincome+Currenttaxes+Deferredtaxes+InterestEBIT=$144+82+16+43EBIT=$380Nowwecancalculatetheoperatingcashflowas:OperatingcashflowEarningsbeforeinterestandtaxes$285Depreciation78Currenttaxes(82)Operatingcashflow$28118Thecashflowfromassetsisfoundintheinvestingactivitiesportionoftheaccountingstatementofcashflows,so:CashflowfromassetsAcquisitionoffixedassets$148Saleoffixedassets(19)Capitalspending$129Thenetworkingcapitalcashflowsareallfoundintheoperationscashflowsectionoftheaccountingstatementofcashflows.However,insteadofcalculatingthenetworkingcapitalcashflowsasthechangeinnetworkingcapital,wemustcalculateeachitemindividually.Doingso,wefind:NetworkingcapitalcashflowCash$42Accountsreceivable15Inventories(18)Accountspayable(14)Accruedexpenses7Notespayable(5)Other(2)NWCcashflow$25Exceptfortheinterestexpenseandnotespayable,thecashflowtocreditorsisfoundinthefinancingactivitiesoftheaccountingstatementofcashflows.Theinterestexpensefromtheincomestatementisgiven,so:CashflowtocreditorsInterest$43Retirementofdebt135Debtservice$178Proceedsfromsaleoflong-termdebt(97)Total$81Andwecanfindthe