University of San Diego CH5 Applying Cash Conversation Equation Worksheet

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Hello, I have attached a couple of documents. The word document is the attachment with the instructions and the rest are the questions from the textbook. Please read the instructions carefully as the answers have to be on an excel spreadsheet.

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FINA 408 Homework #2 Spring 2020 Please answer the following questions from your textbook. SHOW ALL WORK, to receive credit. Submit one spreadsheet (must be in Microsoft excel format) and upload it on the blackboard by the class start on April 14th. Please name your file using the following naming convention: LASTNAME_FIRSTNAME_HW2_SECTION#. Failure to adhere to this policy will result in final score reduction. 1. Problems from Chapter 5: E5.1, E5.3, E5.9, E5.13 2. Problems from Chapter 8: E8.1, E8.3, E8.5, E8.6 3. Problems from Chapter 10: E10.4, E10.5 Chapter 10 The Analysis of the Balance Sheet and Income Statement 327 Income Statement $7,493 6,321 221 951 Revenues Operating expenses Interest expense Income before tax Income tax Net income Preferred dividends Net income available to common 295 656 26 $ 630 E10.6. Reformulation of a Balance Sheet, Income Statement, and Statement of Shareholders' Equity (Medium) The following financial statements were reported for a firm for fiscal year 2012 (in millions of dollars): Balance Sheet 2012 2011 2012 2011 60 550 Operating cash Short-term investments (at market) Accounts receivable Inventory Property and plant 50 500 790 840 2,710 4,890 Accounts payable Accrued liabilities Long-term debt Common equity 1,200 390 1,840 1,870 1,040 450 1,970 1,430 940 910 2,840 5,300 5,300 4,890 Statement of Shareholders' Equity Balance, end of fiscal year 2011 Share issues Repurchase 24 million shares Cash dividend Unrealized gain on debt investments Net income Balance, end of fiscal year 2012 1,430 822 (720) (180) 50 468 1,870 -5 19 2 78 32 12 28 The firm's income tax rate is 35%. The firm reported $15 million in interest income and $98 million in interest expense for 2012. Sales revenue was $3,726 million. a. Reformulate the balance sheet for 2012 in a way that distinguishes operating and financing activities. Also reformulate the equity statement. b. Prepare a reformulated statement of comprehensive income. E10.7. Testing Relationships in Reformulated Income Statements (Medium) Fill in the missing numbers, indicated by capital letters, in the following reformulated income statement. Amounts are in millions of dollars. The firm's marginal tax rate is 35 percent. U. Revenue 3,487 Cost of goods sold 428 Operating expenses 56 Interest income 132 Interest expense The firm pays no taxes. Prepare a reformulated income statement that distinguishes items involved in operations from those involved in financing activities. Tax Allocation (Easy) A firm reported $818 million of net income in its income statement after $140 million of net interest expense and income tax expense of $402 million. Calculate operating income after tax and net financial expense after tax, using a statutory tax rate of 35 percent. Effective Tax Rates (Medium) Consider the following short income statement (in millions): E10.2. E10.3. Operating income before taxes Interest expense before taxes Tax expense Net income $100 10 25 $ 65 The statutory tax rate is 35 percent. What is the effective tax rate on net income before tax? What is the effective tax rate on operating income? E10.4. Tax Allocation: Top-Down and Bottom-Up Methods (Easy) From the following income statement (in millions), calculate operating income after tax, using both the top-down and bottom-up methods. Use a tax rate of 37 percent. Revenue Cost of goods sold Operating expenses Interest expense Income taxes Net income $ 6,450 (3,870) (1,843) (135) (181) $ 421 E10.5. Reformulation of a Balance Sheet and Income Statement (Easy) Reformulate the following balance sheet and income statement for a manufacturing concern. Amounts are in millions. The firm bears a 36 percent statutory tax rate. Balance Sheet Assets Operating cash Cash equivalents Accounts receivable Inventory Property, plant, and equipment $ 23 435 1,827 2,876 3,567 Liabilities and Equity Accounts payable Accrued expenses Deferred tax liability $1,245 1,549 712 Total assets Long-term debt Preferred stock Common equity Liabilities and equity $8,728 3,678 432 1,112 $8,728 54 Part Two The Analysis of Financial Statements E8.6. Using Accounting Relations (Medium) Below are a balance sheet and an income statement that have been reformulated according to the templates laid out in this chapter. Ignore income taxes. Balance Sheet Liabilities and Equity Assets 2012 2011 2012 2011 Operating assets Financial assets 205.3 45.7 189.9 42.0 Operating liabilities Financial liabilities Shareholders' equity 40.6 120.4 90.0 251.0 34.2 120.4 77.3 231.9 251.0 231.9 Income Statement 2012 Operating revenues Operating expenses Operating income Interest revenues Interest expenses Comprehensive income 134.5 (112.8) 21.7 2.5 (9.6) 14.6 a. How much was paid out in net dividends during 2012? b. What is free cash flow for 2012? E8.7. Using Accounting Relations (Medium) Below are financial statements that have been reformulated using the templates in this chapter. Some items are missing; they are indicated by capital letters. Income Statement Six Months to June 30, 2012 A Revenues Operating expenses Cost of sales Research and development expenses Selling, administrative, and general expenses Other operating expenses, including taxes Operating income after tax Net financial expenses after tax Interest expense Interest income Comprehensive income 2,453 507 2,423 2,929 B 850 153 C с 59 791 Chapter 8 Viewing the Business Through the Financial Statements 253 C8.4. Distinguish an operating asset from a financial asset. C8.5. Distinguish an operating liability from a financial liability. C8.6. If an analyst has reformulated balance sheets and income statements, she does not need a cash flow statement to calculate free cash flow. True or false? C8.7. What drives free cash flow? C8.8. What drives dividends? C8.9. What drives net operating assets? C8.10. What drives net financial obligations? C8.11. Free cash flow does not affect common shareholders' equity. True or false? C8.12. Explain why profitable companies sometimes have negative free cash flows (like General Electric in this chapter). Exercises Drill Exercises E8.1. Applying the Cash Conservation Equation (Easy) a. A firm generated $143 million in free cash flow and paid a net dividend of $49 million to shareholders. How much was paid to debtholders and debt issuers? b. A firm paid a dividend to shareholders of $162 million and repurchased stock for $53 million. There were no share issues. The firm received net cash of $86 million from debt financing transactions. What was its free cash flow? E8.2. A Question for the Treasurer (Easy) A firm generated $220 million in free cash flow. It paid out $35 million in dividends and there were no share issues or repurchases. It incurred $6 million in net interest expense (after tax). The boss wants to know what happened to the amount left over. Your answer is: a. Impossible to track it. b. It must have been spent on paying down debt or invested in interest-bearing debt. c. It has been invested back into the business operations. d. Most likely some combination of (b) and (c). E8.3. What Were the Payments to Shareholders? (Easy) a. A firm generated $410 million in free cash flow and spent $340 million of this paying net interest and buying down its net debt. What was the net payout to shareholders? b. The same firm issued shares for $50 million and there were no share repurchases. What was the cash dividend paid to shareholders? E8.4. Applying the Treasurer's Rule (Medium) a. A firm generated free cash flow of $2,348 million and paid net interest of $23 million after tax. It paid a dividend of $14 million and issued shares for $54 million. There were no share repurchases. What did the treasurer do with the remaining cash flow and for how much? b. A firm generated a negative free cash flow of $1,857 million, but the board of directors, understanding that the firm was quite profitable, maintained the dividend of $1.25 per share on the 840 million shares outstanding. The firm also paid $32 million in net interest (after tax). What are the responses open to the treasurer? E8.5. Balance Sheet and Income Statement Relations (Easy) a. A firm holding $432 million in interest-bearing financial assets and with financing debt of $1,891 million, reported shareholders' equity of $597 million. What were its net financial assets? What were its net operating assets? b. The same firm reported $108 million in comprehensive income and net financial expense, after tax, of $47 million. What was its after-tax operating income?
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Explanation & Answer

Attached.

#symbols to use
C=Operations net cash flow

I=investing outflow net cash
C=Operations net cash flow
C-I=Net cash flow "free"
d= dividends (shares issued+repurchases shares+common dividends)
F= (principal payaments+interest paid), the accumulated amount
QUESTION 8.1
Que 8.1 a. applying cash conversation equation
solution
operation net cash flow -investments=dividends+accumulated amount
143=49+F #F is zero
?=143-49
(143*94)/49=274.33
The amount paid to debt issuers is $274.33 million
Que 8.1 b
solution
dividends (d)=repurchased stock+ common dividends
repurchased stock=$53 million
common dividends=$162 million
dividends (d)=$162+$53=$215 million
debt financing flows(F)=$86
applying the cash conversation equation
C-I=d+F
215+(-86) =129
The free cash flow is $129 million

Question 8.3
Payment to shareholders.
Que 8.3 a
solution
Cash flow=$410 million
Net interest + debts payment = $340 million
Net payout to shareholders =?
net payout=cash flow-interest
net payout =410-340=$70
The amount paid to shareholders is $70 million

Que 8.3 b

solution
Cash flow= $410 million
Net interest +debts payment = $340 million
shares issued = $50 million
dividends= issue shared + F (net interest +debts payment)
dividends=$340+$50=$390
the dividends paid will be $390 million.

QUES...


Anonymous
Excellent resource! Really helped me get the gist of things.

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