Chapter 2

Problems 1-24

Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green

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To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak"
and "Solver Add-In."
sis ToolPak"
Chapter 2
Question 1

Input area:

Current assets $ 4,300

Net fixed assets 24,000

Current liabilities $ 2,900

Long-term debt 10,700

Output area:

Balance sheet
Current assets $ 4,300 Current liabilities $ 2,900
Net fixed assets 24,000 Long-term debt 10,700
Owner's equity 14,700
Total liabilities
Total assets $ 28,300 +total equity $ 28,300

Owner's equity $ 14,700

Net working capital $ 1,400

Chapter 2
Question 2

Input area:

Sales $ 473,000
Costs 275,000
Depreciation expense 42,000
Interest expense 23,000

Tax rate 21%

Cash dividends $25,000

Output area:

Income Statement
Sales $ 473,000
Costs 275,000
Depreciation expense 42,000
EBIT $ 156,000
Interest expense 23,000
EBT $ 133,000
Taxes (21%) 27,930
Net income $ 105,070

Addition to retained earnings $ 80,070

Chapter 2
Question 3

Input area:

Book value of net fixed assets $ 4,900,000

Book value of current liabilities $ 2,200,000

Net working capital $ 850,000

Market value of net fixed assets $ 6,400,000

Market value of current assets $ 2,700,000

Output area:

Net working capital $ 850,000

Current liabilities 2,200,000
Book value of current assets $ 3,050,000
Book value of net fixed assets 4,900,000
Book value of total assets $ 7,950,000

Market value of current assets $ 2,700,000

Market value of net fixed assets 6,400,000
Market value of total assets $ 9,100,000
Chapter 2
Question 4

Input area:

Taxable income $ 189,000

Taxable income
- 9,525 10%
9,525 38,700 12%
38,700 82,500 22%
82,500 157,500 24%
157,500 200,000 32%
200,000 500,000 35%
500,000 37%

Output area:

Taxes:
10% $ 9,525 $ 952.50
12% 29,175 3,501.00
22% 43,800 9,636.00
24% 75,000 18,000.00
32% 31,500 10,080.00
35% 0 -
37% 0 -
$ 42,169.50

Average tax rate: $ 42,170 = 22.31%

189,000
Chapter 2
Question 5

Input area:

Sales $ 22,400
Costs $ 11,600
Depreciation Expense $ 2,200
Interest Expense $ 1,370

Tax rate 22%

Output area:

Income Statement
Sales $ 22,400
Costs 11,600
Depreciation expense 2,200
EBIT $ 8,600
Interest expense 1,370
EBT $ 7,230
Taxes (22%) 1,591
Net income $ 5,639

Operating cash flow $ 9,209

Chapter 2
Question 6

Input area:

Dec. 31, 2018 net fixed assets $ 1,280,000

Dec. 31, 2019 net fixed assets $ 1,430,000

Depreciation expense $ 146,000

Output area:

Net capital spending $ 296,000

Chapter 2
Question 7

Input area:

Long-term debt $ 45,000,000

Preferred stock $ 2,900,000
Common stock $ 11,000,000
Accumulated retained earnings $ 107,000,000
Capital surplus $ 49,000,000
New shares issued 4,500,000
Par value of stock $ 1
Value of new stock sold $ 58,000,000
New long-term debt issued $ 30,000,000
Net income $ 7,500,000
Dividends $ 1,700,000

Output area:

Long-term debt $ 75,000,000

Total long-term debt $ 75,000,000

Shareholders equity
Preferred stock $ 2,900,000
Common stock ($1 par value) 15,500,000
Accumulated retained earnings 112,800,000
Capital surplus 102,500,000
Total equity $ 233,700,000

Total liabilities & equity $ 308,700,000

Chapter 2
Question 8

Input area:

Dec. 31, 2018 Long-term debt $ 1,565,000

Dec. 31, 2019 Long-term debt $ 1,645,000

Interest expense $ 170,000

Output area:

Cash flow to creditors $ 90,000

Chapter 2
Question 9

Input area:

Dec. 31, 2018 Common stock $ 490,000

Dec. 31, 2018 Additional paid-in surplus 3,400,000

Dec. 31, 2019 Common stock $ 525,000

Dec. 31, 2019 Additional paid-in surplus 3,750,000

Cash dividends $ 335,000

Output area:

Cash flow to stockholders $ (50,000)

Chapter 2
Question 10

Input area:

From the previous problems:

2019 Cash flow to creditors $ 90,000
2019 Cash flow to stockholders (50,000)

New information:
2019 Net capital spending $ 735,000
Change in net working capital (96,000)

Output area:

Cash flow from assets $ 40,000

Operating cash flow $ 679,000

Chapter 2
Question 11

Input area:

Balance Sheet
2018 2019
Assets
Cash $ 63 $ 84
Other current assets 175 192
Net fixed assets 398 417
Total assets $ 636 $ 693

Income Statement
Revenue $ 797
Expenses 576
Depreciation 92
Net income $ 129

Dividends $ 97

Output area:

Statement of cash flows

Operations
Net income $ 129
Depreciation 92
Change in other current assets (17)
Accounts payable 17
Total cash flow from operations $ 221

Investing activities
Acquisition of fixed assets $ (111)
Total cash flow from investing activities $ (111)

Financing activities
Proceeds of long-term debt 8
Dividends (97)
Total cash flow from financing activities $ (89)

Change in cash (on balance sheet) $ 21

Ending NWC $ 130

Beginning NWC 109
Change in NWC $ 21
Operating cash flow
Net income $ 129
Depreciation 92
Operating cash flow $ 221

Capital spending
Ending fixed assets $ 417
Beginning fixed assets (398)
Depreciation 92
Capital spending $ 111

Cash flow from assets

Operating cash flow $ 221
Capital spending (111)
Change in NWC (21)
Cash flow from assets $ 89
lance Sheet
2018 2019
Liabilities and equity
Current liabilities $ 129 $ 146
Long-term debt 155 163
Stockholder's equity 352 384
Total liabilities and equity $ 636 $ 693
Chapter 2
Question 12

Input area:

Proceeds from long-term borrowing $ 16,400

Proceeds from sale of common stock $ 4,000
Purchases of fixed assets $ 29,000
Purchases of inventories $ 2,400
Payment of dividends $ 13,100

Output area:

Capital spnding and NWC

Capital spending $ (29,000)
Additions to NWC (2,400)
Cash flows from the firm $ (31,400)

Cash flows to investors of the firm

Sale of long-term debt (16,400)
Sale of common stock (4,000)
Dividends paid 13,100
Cash flows to investors of the firm $ (7,300)
Chapter 2
Question 13

Input area:

Sales $ 865,000
Cost of goods sold $ 455,000
Selling expenses $ 210,000
Notes payable $ 680,000
Interest rate 4%
Depreciation expense $ 105,000
Tax rate 21%

Output area:

Income Statement
Sales $ 865,000
Cost of goods sold 455,000
Selling expenses 210,000
Depreciation expense 105,000
EBIT $ 95,000
Interest expense 27,200
EBT $ 67,800
Taxes (21%) 14,238
Net income $ 53,562

EBIT $ 95,000
Depreciation 105,000
Taxes (14,238)
Operating cash flow $ 185,762
 Chapter 2
Question 14

Input area:

Sales $ 246,000
Costs $ 135,000
Other expenses $ 7,100
Depreciation expense $ 19,100
Interest expense $ 10,000
Taxes $ 18,876
Dividends $ 9,800

New equity $ 7,900

Net new long-term debt $ (6,800)
Change in fixed assets $ 41,900

Output area:

Income Statement
Sales $ 246,000
Costs 135,000
Other expenses 7,100
Depreciation expense 19,100
EBIT $ 84,800
Interest expense 10,000
EBT $ 74,800
Taxes 18,876
Net income $ 55,924
Dividends $ 9,800
Addition to retained earnings $ 46,124

a. Operating cash flow $ 85,024

b. Cash flow to creditors $ 16,800

c. Cash flow to stockholders $ 1,900

d. Cash flow from assets $ 18,700

Net capital spending 61,000

Change in NWC $ 5,324

Chapter 2
Question 15

Input area:

Sales $ 54,000
Costs $ 29,500
Addition to retained earnings $ 5,300
Dividends paid $ 1,720
Interest expense $ 2,050
Tax rate 21%

Output area:

Income Statement
Sales $ 54,000.00
Costs 29,500.00
Depreciation expense $ 13,563.92
EBIT $ 10,936.08
Interest expense 2,050.00
EBT $ 8,886.08
Taxes (21%) 1,866.08
Net income $ 7,020.00
Dividends $ 1,720.00
Addition to retained earnings $ 5,300.00
 Chapter 2
Question 16

Input area:

Total liabilities $ 10,700

a. Total assets $ 11,900

b. Total assets $ 9,400

Output area:

a. Owners' equity $ 1,200

b. Owners' equity 0
 Chapter 2
Question 17

Input area:

Sales $ 630,000
Costs $ 465,000
Administrative and selling expenses $ 85,000
Depreciation expense $ 135,000
Interest expense $ 70,000

Tax rate 21%

Output area:

Income Statement
Sales $ 630,000
Costs 465,000
Administrative and selling expenses 85,000
Depreciation expense 135,000
EBIT $ (55,000)
Interest expense 70,000
EBT $ (125,000)
Taxes 0
a. Net income $ (125,000)

b. Operating cash flow $ 80,000

c. Net income was negative. However, the actual cash flow from
operations was positive because depreciation is a non-cash
expense and interest is a financing, not an operating, expense.
Chapter 2
Question 18

Input area:

From Problem 17:

Operating Cash Flow $ 80,000
Interest 70,000

New information:
Cash dividend $ 34,000
New investment in net fixed income 0
New investment in net working capital 0
New stock issued during year 0
Net capital spending 0
Net new equity 0

Output area:

Cash flow from assets $ 80,000

Cash flow to stockholders 34,000
Cash flow to creditors 46,000

Net new long-term debt $ 24,000

A firm can still pay out dividends if net income is

negative; it has to be sure there is sufficient
cash flow to make dividend payments.
 Chapter 2
Question 19

Input area:

Sales $ 24,360
Cost of goods sold $ 17,600
Depreciation expense $ 3,400
Interest expense $ 860
Dividends paid $ 790
New debt issued 0

2018 Net fixed assets $ 18,650

2018 Current assets $ 5,560
2018 Current liabilities $ 3,040

2019 Net fixed assets $ 21,180

2019 Current assets $ 6,410
2019 Current liabilities $ 3,445

Tax rate 21%

Output area:

Income Statement
Sales $ 24,360
Costs 17,600
Depreciation expense 3,400
EBIT $ 3,360
Interest expense 860
EBT $ 2,500
Taxes (21%) 525
a. Net income $ 1,975

b. Operating cash flow $ 6,235

Change in net working capital $ 445

Net capital spending $ 5,930

c. Cash flow from assets $ (140)

The cash flow from assets can be positive or negative, since it represents whether
the firm raised funds or distributed funds on a net basis. In this problem, even though
 net income and OCF are positive, the firm invested heavily in both fixed assets and net
working capital; it had to raise a net $140 in funds from its stockholders and
creditors to make these investments.

d. Cash flow to creditors $ 860

Cash flow to stockholders $ (1,000)

New equity $ 1,790

The firm had positive earnings in the accounting sense (NI>0) and had positive cash flow
from operations. The firm invested $445 in new NWC and $5,930
in new fixed assets. The firm had to raise $140 from its
stakeholders to support this new investment. It accomplished this by raising $1,790
in the form of equity. After paying out $790 of this in the form of dividends to
shareholders and $860 in the form of interest to creditors,
$140 was left to meet the firm's cash flow needs
for investment.
 Chapter 2
Question 20

Input area:

Sales $ 17,688
Cost of goods sold $ 7,118
Depreciation expense $ 1,478
Interest expense $ 392

2018 Net fixed assets $ 5,261

2018 Current assets $ 1,157
2018 Current liabilities $ 481
2018 Long-term debt $ 2,856

2019 Net fixed assets $ 6,125

2019 Current assets $ 1,411
2019 Current liabilities $ 534
2019 Long-term debt $ 3,256

2019 New fixed assets purchased $ 2,820

2019 New long-term debt $ 545
Tax rate 22%

Output area:

Income Statement
Sales $ 17,688
Costs 7,118
Depreciation expense 1,478
EBIT $ 9,092
Interest expense 392
EBT $ 8,700
Taxes 1,914
Net income $ 6,786

a. 2018 Total assets $ 6,418

2018 Total liabilities 3,337
2018 Owners' equity $ 3,081

2019 Total assets $ 7,536

2019 Total liabilities 3,790
2019 Owners' equity $ 3,746
b. 2018 Net working capital $ 676
2019 Net working capital 877
Change in net working capital $ 201
c. Net capital spending $ 2,342
Fixed assets sold $ 478

2019 Operating cash flow $ 8,656

Cash flow from assets $ 6,113

d. Debt retired $ 145

Net new borrowing $ 400

Cash flow to creditors $ (8)
Chapter 2
Question 21

Input area:

2018 2019
Sales $ 8,462 $ 9,082
Depreciation $ 1,215 $ 1,216
Cost of goods sold $ 2,912 $ 3,305
Other expenses $ 690 $ 577
Interest $ 567 $ 652
Cash $ 4,438 $ 5,620
Accounts receivable $ 4,874 $ 6,617
Short-term notes payable $ 858 $ 806
Long-term debt $ 14,537 $ 17,334
Net fixed assets $ 37,211 $ 39,049
Accounts payable $ 4,661 $ 4,520
Inventory $ 10,444 $ 10,733
Dividends $ 1,032 $ 1,135

Tax rate 21% 21%

Output area:

Balance sheet as of Dec. 31, 2018

Cash $ 4,438 Accounts payable $ 4,661
Accounts receivable 4,874 Notes payable 858
Inventory 10,444 Current liabilities $ 5,519
Current assets $ 19,756
Long-term debt $ 14,537
Net fixed assets $ 37,211 Owners' equity 36,911
Total assets $ 56,967 Total liab. & equity $ 56,967

Balance sheet as of Dec. 31, 2019

Cash $ 5,620 Accounts payable $ 4,520
Accounts receivable 6,617 Notes payable 806
Inventory 10,733 Current liabilities $ 5,326
Current assets $ 22,970
Long-term debt $ 17,334
Net fixed assets $ 39,049 Owners' equity 39,359
Total assets $ 62,019 Total liab. & equity $ 62,019
 2018 Income Statement
Sales $ 8,462.00
Costs 2,912.00
Other expenses 690.00
Depreciation 1,215.00
EBIT $ 3,645.00
Interest 567.00
EBT $ 3,078.00
Taxes 646.38
Net income $ 2,431.62
Dividends $ 1,032.00
Addition to retained earnings 1,399.62

2019 Income Statement

Sales $ 9,082.00
Costs 3,305.00
Other expenses 577.00
Depreciation 1,216.00
EBIT $ 3,984.00
Interest 652.00
EBT $ 3,332.00
Taxes 699.72
Net income $ 2,632.28
Dividends $ 1,135.00
Addition to retained earnings 1,497.28
Chapter 2
Question 22

Input area:

2018 2019
Sales $ 8,462 $ 9,082
Depreciation $ 1,215 $ 1,216
Cost of goods sold $ 2,912 $ 3,305
Other expenses $ 690 $ 577
Interest $ 567 $ 652
Cash $ 4,438 $ 5,620
Accounts receivable $ 4,874 $ 6,617
Short-term notes payable $ 858 $ 806
Long-term debt $ 14,537 $ 17,334
Net fixed assets $ 37,211 $ 39,049
Accounts payable $ 4,661 $ 4,520
Inventory $ 10,444 $ 10,733
Dividends $ 1,032 $ 1,135

Tax rate 21% 21%

From Problem 21:

Owners' equity $ 36,911 $ 39,359

Output area:

2019 Income Statement

Sales $ 9,082.00
Costs 3,305.00
Other expenses 577.00
Depreciation 1,216.00
EBIT $ 3,984.00
Interest 652.00
EBT $ 3,332.00
Taxes (21%) 699.72
Net income $ 2,632.28
Dividends $ 1,135.00
Addition to retained earnings 1,497.28

Operating cash flow $ 4,500.28

Change in NWC 3,407.00
Net capital spending 3,054.00

Cash flow from assets $ (1,960.72)

Net new long-term debt $ 2,797.00

Cash flow to creditors $ (2,145.00)

Net new equity $ 950.72

Cash flow to stockholders $ 184.28

Chapter 2
Question 23

Input area:

Current taxes $ 81
Interest expense $ 38

Statement of cash flows

Operations
Net income $ 187
Depreciation 74
Deferred taxes 11
Changes in assets and liabilities
Accounts receivable (12)
Inventories 15
Accounts payable 11
Accrued expenses (6)
Other 2
Total cash flow from operations $ 282

Investing activties
Acquisition of fixed assets $ (194)
Sale of fixed assets 19
Total cash flow from investing activities $ (175)

Financing activties
Retirement of long-term debt $ (145)
Proceeds from long-term debt sales 110
Dividends (67)
Repurchase of stock (32)
Proceeds from new stock issues 39
Total cash flow from financing activities $ (95)

Change in cash (on balance sheet) $ 12

Output area:
Operating cash flow
Earnings before interest and taxes $ 317
Depreciation 74
Current taxes (81)
Operating cash flow $ 310

Cash flow from assets

Acquisition of fixed assets $ 194
Sale of fixed assets (19)
Capital spending $ 175

Net working capital cash flow

Cash $ 12
Accounts receivable 12
Inventories (15)
Accounts payable (11)
Accrued expenses 6
Other (2)
NWC cash flow $ 2

Cash flow to creditors

Interest $ 38
Retirement of debt 145
Debt service $ 183
Proceeds from sale of long-term debt (110)
Total $ 73

Cash flow to stockholders

Dividends $ 67
Repurchase of stock 32
Cash to stockholders $ 99
Proceeds from new stock issue (39)
Total $ 60
Chapter 2
Question 24

Net capital spending = NFAend - NFAbeg + Depreciation

= (NFAend - NFAbeg) + (Depreciation + ADbeg) - ADbeg
= (NFAend - NFAbeg) + ADend - ADbeg
= (NFAend + ADend) - (NFAbeg + ADbeg)
= FAend - FAbeg