Exhibit 25.10 presents deferred tax assets and liabilities for ToyCo. Reorganize

Question

Exhibit 25.10 presents deferred tax assets and liabilities for ToyCo. Reorganize the deferred tax table into three categories net operating deferred tax liabilities (net of operating deferred tax assets), nonoperating deferred tax assets, and nonoperating deferred tax liabilities. In Year 3, ToyCo generated $200.7 million in operating taxes on $673.6 million of EBITA. Using this information, what are the cash taxes in Year 3? What is percent of operating taxes that were deferred and what is the operating cash tax rate?

ToyCo has working capital of $400 million, fixed assets equal to $800 million, and debt equal to
$600 million. Use this data and the reorganized deferred taxes in Question 4 to create invested
capital and total funds invested for Year 3. Use equity as the plug to get total fund invested to
reconcile.

Explanation / Answer

Net operating deferred tax liabilities-

Year 1 Year 2 Year 3 Operating Deferred Tax Liabilities: $ MILLION $ MILLION $ MILLION Depreciation on Long Live Assets $15.90 $40.50 $40.10 Operating Deferred Tax Assets: Account Receivable $20.50 $16.80 $17.30 Inventories $24.60 $20.20 $15.90 Loss and Tax Credit $39.10 $34.40 $29.60 Pension $10.00 $34.10 $26.60 Total Deferred Tax Assets $94.20 $105.50 $89.40 Net operating deferred tax liabilities -$78.30 -$65.00 -$49.30

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