Below are the financial statements that you are asked to prepare. 1.The income statement for each year will look like this: Income statement 2009 $277,855 141,641 27,854 39,983 $68,377 8,702 $59,675 11,935 $47,740 $23,870 23,870 Sales Cost of goods sold Selling & administrative Depreciation EBIT Interest EBT Taxes Net income Dividends Addition to retained earnings 2. 2010 $338,688 178,839 36,355 45,192 $78,302 9,962 $68,340 13,668 $54,672 $27,336 27,336 The balance sheet for each year will be: Balance sheet as of Dec. 31, 2009 $20,437 Accounts payable 14,482 Notes payable 30,475 Current liabilities $65,394 Long-term debt $176,400 Owners' equity $241,794 Total liab. & equity Cash Accounts receivable Inventory Current assets Net fixed assets Total assets $36,120 16,464 $52,584 $89,040 $100,170 $241,794 In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as: Equity = $241,794 – 89,040 – 52,854 Equity = $100,170 400 45.826 4.480 $144.602 12.670 The owner’s equity for 2010 is the beginning of year owner’s equity. plus the addition to retained earnings.184 Owners' equity $305.306 3.908 17. so: Equity = $100. The capital spending for the year was: Capital spending Ending net fixed assets – Beginning net fixed assets + Depreciation Net capital spending $214. Using the OCF equation: OCF = EBIT + Depreciation – Taxes The OCF for each year is: OCF2009 = $68.884 $102.Cash Accounts receivable Inventory Current assets Net fixed assets Total assets Balance sheet as of Dec.302 + 45. & equity $40. we need to find the capital spending and change in net working capital.668 OCF2010 = $109. To calculate the cash flow from assets.170 + 27.976 $58.800 Equity = $144. plus the new equity. 31.306 $305.983 – 11.670 Total liab.425 OCF2010 = $78.785 Notes payable 41.336 + 16.935 OCF2009 = $96.792 .192 – 13.486 Long-term debt $214.377 + 39.880 Accounts payable 18.192 $ 82. 2010 $30.184 176.821 Current liabilities $91.976 And the change in net working capital was: Change in net working capital Ending NWC – Beginning NWC Change in NWC $32.810 $19. 792 $ 7. The cash flow to stockholders was: Cash flow to stockholders Dividends paid – Net new equity raised Cash flow to stockholders Answers to questions 1.976 19.792 in new net working capital and $82. The firm invested $19. The company has had to raise capital from creditors and stockholders for its current operations.440 –$3. The firm gave $7.536 to stockholders. The expansion plans may be a little risky. The company does have a positive cash flow.536 . you would want to know where the current capital spending is going. but a large portion of the operating cash flow is already going to capital spending. Before investing or loaning the company money. So. The cash flow to creditors was: Cash flow to creditors Interest paid – Net new borrowing Cash flow to creditors 6. $109. and why the company is spending so much in this area already.058 $9.336 16.478 $27.976 in new fixed assets.826 82.So.478 from bondholders. 2. companies do need capital to grow. the expansion plans may be too aggressive at this time.962 13. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. and paid $10.800 $10. On the other hand. It raised $3.058 to its stakeholders. the cash flow from assets was: Cash flow from assets Operating cash flow – Net capital spending – Change in NWC Cash flow from assets 5.