Details: Complete the following problems from chapter 4 in the textbook:
Follow these instructions for completing and submitting your assignment:
1. Do all work in Excel. Do not submit Word files or *.pdf files.
2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.
3. Place each problem on a separate spreadsheet tab.
4. Label all inputs and outputs and highlight your final answer.
5. Follow the directions in “Guidelines for Developing Spreadsheets.”
P4–5 Classifying inflows and outflows of cash Classify each of the following items as an
inflow (I) or an outflow (O) of cash, or as neither (N).
Item ($) Change Item ($)
Cash +100 Accounts receivable −700
Accounts payable −1,000 Net profits +600
Notes payable +500 Depreciation +100
Long-term debt −2,000 Repurchase of stock +600
Inventory +200 Cash dividends +800
Fixed assets +400 Sale of stock +1,000
P4–6 Finding operating and free cash flows Consider the following balance sheets and
selected data from the income statement of Keith Corporation.
December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $29,500 28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $14,800 $15,000
Total assets $23,000 $21,800
Liabilities and stockholders’ equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $10,000 $10,000
Retained earnings 3,400 2,800
Total stockholders’ equity $13,400 $12,800
Total liabilities and stockholders’ equity $23,000 $21,800
| Keith Corporation Income Statement Data (2015) |
| Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate 40% |
a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended
December 31, 2015, using Equation 4.1.
b. Calculate the firm’s operating cash flow (OCF) for the year ended December 31,
2015, using Equation 4.3.
c. Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2015,
using Equation 4.4.
d. Interpret, compare, and contrast your cash flow estimates in parts b and c.
P4–9 Cash budget: Basic Grenoble Enterprises had sales of $50,000 in March and
$60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and
$100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes
to maintain a minimum cash balance of $5,000. Given the following data, prepare
and interpret a cash budget for the months of May, June, and July.
(1) The firm makes 20% of sales for cash, 60% are collected in the next month,
and the remaining 20% are collected in the second month following sale.
(2) The firm receives other income of $2,000 per month.
(3) The firm’s actual or expected purchases, all made for cash, are $50,000,
$70,000, and $80,000 for the months of May through July, respectively.
(4) Rent is $3,000 per month.
(5) Wages and salaries are 10% of the previous month’s sales.
(6) Cash dividends of $3,000 will be paid in June.
(7) Payment of principal and interest of $4,000 is due in June.
(8) A cash purchase of equipment costing $6,000 is scheduled in July.
(9) Taxes of $6,000 are due in June.
P4–15 Pro forma income statement The marketing department of Metroline Manufacturing
estimates that its sales in 2016 will be $1.5 million. Interest expense is expected
to remain unchanged at $35,000, and the firm plans to pay $70,000 in cash dividends
during 2016. Metroline Manufacturing’s income statement for the year ended
December 31, 2015, and a breakdown of the firm’s cost of goods sold and operating
expenses into their fixed and variable components are given below.
a. Use the percent-of-sales method to prepare a pro forma income statement for the
year ended December 31, 2016.
b. Use fixed and variable cost data to develop a pro forma income statement for the
year ended December 31, 2016.
c. Compare and contrast the statements developed in parts a and b. Which statement
| Metroline Manufacturing
Breakdown of Costs and Expenses
into Fixed and Variable Components
for the Year Ended December 31, 2015 |
| Cost of goods sold
Fixed cost $210,000
Variable cost 700,000
Total costs $910,000
Operating expenses
Fixed expenses $ 36,000
Variable expenses 84,000
Total expenses $120,000 |
probably provides the better estimate of 2016 income? Explain why.
| Metroline Manufacturing Income Statement
for the Year Ended December 31, 2015 |
| Sales revenue $1,400,000
Less: Cost of goods sold 910,000
Gross profits $ 490,000
Less: Operating expenses 120,000
Operating profits $ 370,000
Less: Interest expense 35,000
Net profits before taxes $ 335,000
Less: Taxes (rate = 40%) 134,000
Net profits after taxes $ 201,000
Less: Cash dividends 66,000
To retained earnings $ 135,000 |
P4–18 Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It
wishes to analyze expected performance and financing needs for 2017, which is
2 years ahead. Given the following information, respond to parts a and b.
(1) The percents of sales for items that vary directly with sales are as follows:
Accounts receivable, 12%
Inventory, 18%
Accounts payable, 14%
Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain
unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2016, and equipment
costing $850,000 will be purchased in 2017. Total depreciation in 2016 is
forecast as $290,000, and in 2017 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2017.
(6) No sale or retirement of long-term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2016 and $12 million in 2017.
(10) The December 31, 2015, balance sheet follows.
| Peabody & Peabody Balance Sheet December 31, 2015 ($000) |
| Assets
Cash $ 400
Marketable securities 200
Accounts receivable 1,200
Inventories 1,800
Total current assets $3,600
Net fixed assets 4,000
Total assets $7,600
Total liabilities and
stockholders’ equity |
Liabilities and stockholders’ equity
Accounts payable $1,400
Accruals 400
Other current liabilities 80
Total current liabilities $1,880
Long-term debt 2,000
Total liabilities 3,880
Common equity 3,720
$7,600 |
a. Prepare a pro forma balance sheet dated December 31, 2017.
b. Discuss the financing changes suggested by the statement prepared in part a.
