Texas Aces Inc. reported the following balance sheets (in $’000) for 2009 and 20
ID: 2771791 • Letter: T
Question
Texas Aces Inc. reported the following balance sheets (in $’000) for 2009 and 2010:
2009
2010
Current assets
305
470
Fixed assets
12023
12549
Current liabilities
286
347
Long-term debt
4325
4886.9
Shareholders equity
7717
7785.1
They also reported the following income statement (in $’000) for 2010:
2010
Revenue
3150
Operating expenses
1659
Depreciation
442
Interest paid
335
Dividends paid
327.9
Assume the (average and marginal) corporate tax rate is 35% and the firm uses IRS
depreciation schedules.
For the year 2010, calculate Texas Aces’:
(a) earnings before interest and taxes (EBIT)
(b) taxable corporate income
(c) corporate tax payable
(d) accounting income net of corporate tax
(e) operating cash flow
(f) cash flow due to investment
(g) total cash flow
(h) cash flow to long-term creditors
(i) cash flow to shareholders [Hint: Note that “shareholders equity” is not the same thing as the market value of equity outstanding (consider, for example, how retained earnings are treated).]
2009
2010
Current assets
305
470
Fixed assets
12023
12549
Current liabilities
286
347
Long-term debt
4325
4886.9
Shareholders equity
7717
7785.1
Explanation / Answer
EBIT:
= Revenue-Operating expenses-Depreciation
= $3,150-$1,659-$442
= $1,049
Taxable corporate income:
= EBIT-Interest
= $1,049-$335
= $714
Corporate tax:
= $714×35%
= $250
Accounting income net of tax:
= EBIT-Interest-Tax
= $1,049-$335-$250
= $464
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