Ques. 1) Timber firewood company reported the following numbers in its 2010 inco

Question

Ques. 1)
Timber firewood company reported the following numbers in its 2010 income statement:
EBIT $520,000
Depreciation $35,000
Interest expenses $24,000
General expenses $110,000

If it's marginal tax rate was 30%, what were Timber's cash flows from operating activities for 2010?


Ques. 2)
For the year ending June 30, 2008, the Austin Corporation has current assets of $ 275,000 and total assets of $ 900,000. It also has current liabilities of $ 150,000, equity of $ 200,000, and retained earnings of $ 100,000. The marginal tax rate for the firm is 30%. How much long-term debt does the firm have?

Explanation / Answer

1) cash flows in 2010 = EBIT - Interest - Tax Now, Tax = (EBIT - Interest - Depreciation)* Tax rate => = (520000 - 24000 -35000)*0.3 = 138300 ($) So, cash flow = 520000 - 24000 - 138300 = 357700 ($) (ANSWER) 2) Total assets = Total liabilities => 900000 = 150000+200000+100000 + Long-term Debt => Long-term Debt = 900000 - 450000 = 450000 ($) (ANSWER)

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