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| |
Spring 1, 2013 |
|
| 7/22/12 |
| Chapter 2. Ch 02 P14 Build a Model |
| Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. |
| Numeric answers in cells will not be accepted. |
| a. Cumberland Industries’ most recent sales were
| $455,000 |
,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were
$
| 67,000 |
,000; depreciation amounted to 10% of net fixed assets; interest expenses were
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$8,550 |
,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid
25% |
of its net income out in dividends. Given this information, construct Cumberland’s income statement. Also calculate total dividends and the addition to retained earnings.
| 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. |
| Key Input Data for Cumberland Industries |
|
| 2010 |
| (Thousands of dollars) |
|
| Sales |
Revenue
$455,000
| Expenses (excluding depreciation) as a percent of sales |
85.0% |
| Net fixed assest |
$67,000
| Depr. as a % of net fixed assets |
10.0% |
| Tax rate |
40.0% |
|
| Interest expense |
$8,550
| Dividend Payout Ratio |
25%
| Cumberland Industries: Income Statement (Thousands of dollars) |
2010
Sales
| Operating costs excluding depreciation |
|
| EBIT |
DA
| Depreciation (Cumberland has no amortization charges) |
EBIT
Interest expense
| EBT |
| Taxes (40%) |
| Net income |
| Common dividends |
| Addition to retained earnings |
| b. Cumberland Industries’ partial balance sheets are shown below. Cumberland issued
| $10,000 |
,000 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.
| Dollar value of common stock issued
|
| (in thousands of dollars) |
$10,000
| Cumberland Industries December 31 Balance Sheets |
(in thousands of dollars)
2010
| 2009 |
| Assets |
| Cash and cash equivalents |
| $91,450 |
$74,625 |
| Short-term investments |
11,400 |
15,100 |
| Accounts Receivable |
108,470 |
85,527 |
| Inventories |
38,450 |
34,982 |
| Total current assets |
$249,770 |
$210,234 |
| Net fixed assets |
67,000
42,436 |
| Total assets |
$316,770 |
| $252,670 |
| Liabilities and equity |
| Accounts payable |
$30,761 |
$23,109 |
| Accruals |
30,405 |
22,656 |
| Notes payable |
12,717 |
14,217 |
| Total current liabilities |
$73,883 |
$59,982 |
| Long-term debt |
80,263 |
63,914 |
| Total liabilities |
$154,146 |
$123,896 |
| Common stock |
$90,000 |
| Retained earnings |
38,774 |
| Total common equity |
$128,774 |
| Total liabilities and equity |
$252,670
| Check for balancing (this should be zero): |
| c. Construct the statement of cash flows for the most recent year. |
| Statement of Cash Flows |
(in thousands of dollars)
| Operating Activities |
| Net Income |
| Adjustments: |
| Noncash adjustment: |
| Depreciation |
| Due to changes in working capital: |
| Due to change in accounts receivable |
| Due to change in inventories |
| Due to change in accounts payable |
| Due to change in accruals |
| Net cash provided (used) by operating activities |
| Investing Activities |
| Cash used to acquire gross fixed assets |
| Due to change in short-term investments |
| Net cash provided (used) by investing activities |
| Financing Activities |
| Due to change in long-term debt |
|
|
Mike Ehrhardt: An increase in debt is a positive cash flow. |
Due to change in notes payable |
Mike Ehrhardt: An increase in debt is a positive cash flow.
| Due to change in common stock |
|
Mike Ehrhardt: An increase in common stock is a positive cash flow. |
Kenneth D. Jackson: An increase in accounts receivable from the pevious year to the current year reduces the net cash provided by operating activities
|
Kenneth D. Jackson: An increase in Inventory from the previous year to the current year reduces the net cash provided by operation activities |
Mike Ehrhardt: An increase in accounts payable increases cash flow. |
Mike Ehrhardt: An increase in accruals is a positive cash flow. |
Christopher Buzzard: Remember, to calculate cash used to acquire fixed assets, we must include depreciation, i.e., assets purchased are equal to the increase in net assets plus depreciation. |
Mike Ehrhardt: Selling securities is a positive cash flow, buying securities is a negative cash flow. |
Payment of common dividends |
| Net cash provided (used) by financing activities |
| Net increase/decrease in cash |
| Add: Cash balance at the beginning of the year |
| Cash balance at the end of the year |
| Check: cash balance in statement of cash flows should equal the cash on balance sheets as shown here: |
$91,450
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