Demonstrate your understanding of financial concepts by completing the following
ID: 2736406 • Letter: D
Question
Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work the problems.
Problem 1. Building a Balance Sheet: Jones, Incorporated has net fixed assets of $22,500, current assets of $8,200, current liabilities of $6,400, and long-term debt of $12,500. What is the value of the company's stockholders equity and net working capital?
Problem 2. Building an Income Statement: Tanner, Incorporated has sales of $863,000, costs of $407,000, depreciation expenses of $58,000, and interest expenses of $23,600, with a tax rate of 35 percent. Calculate the net income for the firm. If the company paid out $77,000 in cash dividends, calculate the increase to retained earnings.
Problem 3. Calculating Operating Cash Flow: Willard, Incorporated has sales of $26,400, costs of $9,400, depreciation expense of $1,500, interest expense of $925, and a tax rate of 40 percent. Calculate the operating cash flow.
Problem 4. Equity Multiplier and Return on Equity: Drake Company has a return on assets of 10.75 percent, total equity of $875,000, and a debt-equity ratio of 0.85. What is the equity multiplier? What is the return on equity? What is the net income?
Problem 5. Sustainable Growth: GTS Corporation has a 12 percent ROE and a 30 percent payout ratio. Calculate its sustainable growth rate. Problem 6. Calculating Taxable Income: The Conrad Company has $267,000 in taxable income. Using the rates on the taxable income table below, calculate their average tax rate and marginal tax rate.
Problem 6. Calculating Taxable Income: The Conrad Company has $267,000 in taxable income. Using the rates on the taxable income table below, calculate their average tax rate and marginal tax rate.
Taxable Income (in $)
Tax Rate
0–50,000.
15%
50,001.–75,000.
25%
75,001.–100,000.
34%
100,001.–335,000.
39%
335,001–10,000,000.
34%
10,000,001–15,000,000.
35%
15,000,001–18,333,333.
38%
18,333,334+
35%
Taxable Income (in $)
Tax Rate
0–50,000.
15%
50,001.–75,000.
25%
75,001.–100,000.
34%
100,001.–335,000.
39%
335,001–10,000,000.
34%
10,000,001–15,000,000.
35%
15,000,001–18,333,333.
38%
18,333,334+
35%
Explanation / Answer
1./
STOCK HOLDERS EQUITY
= NET FIXED ASSET + CURRENT ASSET - CURRENT LIABALITY - LONG TERM DEBT
= $12500 + $8200 - $6400 - $12500
= $11800
NET WORKING CAPITAL
= CURRENT ASSET - CURRENT LIBALITY
= $8200 - $6400
= $800
2./
3./
4./
DEBT-EQUITY RATIO
= DEBT / EQUITY
0.85 = DEBT / $875000
DEBT = $743750
TOTAL ASSET = TOTAL DEBT + TOTAL EQUITY
= $743750 + $875000
= $1618750
EQUITY MULTIPLIER
= TOTAL ASSET / TOTAL EQUITY
= $1618750 / $875000
= 1.85
RETURN ON ASSET = NET INCOME/ TOTAL ASSET
0.1075 = NET INCOME / $1618750
NET INCOME = $174015.625
RETURN ON EQUITY
= NET INCOME / TOTAL EQUITY
= $174015.625 / $875000
= 19.8875%
6./
TOTAL TAX PAYABLE ON $267000
= $50000 * 15% + $25000* 25% + $25000 * 34% + $167000 * 39%
= $7500 + $6250 + $8500 + $65130
= $87380
AVERAGE TAX RATE
= TOTAL TAX PAYABLE / TOTAL TAXABLE INCOME
= $87380 / $267000
= 32.73%
MARGINAL TAX RATE IS 39%
DETAILS BAMOUNT SALES REVENUE $863000 COST OF GOODS SOLD ($407000) DEPERICATION EXPENSES ($58000) INTEREST EXPENSES ($23600) GROSS INCOME $374400 INCOME TAX ($131040) NET INCOME $243360 CASH DIVIDEND PAID ($77000) INCEREASE IN RETAINED EARNINGS $166360Related Questions
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