Textbook - FUNDAMENTALS OFCORPORATE FINANCE, SECOND EDITION by Robert Parrino, David S. Kidwell and Thomas W. Bates
Part I:
1. What is a major reason for the accounting scandals in the early 2000s? How do firms sometimes attempt to meet Wall Street analysts' earnings projections?
2. Why are taxes and the tax code important for managerial decision making?
3. Explain why firms prefer to use accelerated depreciation methods over the straight-line method for tax purposes.
4. Compare and contrast depreciation expense and amortization expense
5. What is the statement of cash flows, and what is its role?
Part II: Complete the following problems at the end of chapter 3 in your textbook:
1. Balance sheet: Tim Dye, the CFO of Blackwell Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $313,299, retained earnings of $512,159, inventory of $212,444, goodwill and other assets equal to $78,656, net plant and equipment of $711,256, and short-term notes payable of $21,115. It also had accounts receivable of $141,258 and other current assets of $11,223. How much long-term debt does Blackwell Automotive have?
2. Working capital: Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: current ratio current assets/current liabilities. The firm's current assets are equal to $1,233,265, its accounts payables are $419,357, and its notes payables are $351,663. Its inventory is currently at $721,599. The company plans to raise funds in the short term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.50?
3. Market value: Reservoir Bottling Company reported the following information at the end of the year. Total current assets are worth $237,513 at book value and $219,344 at market value. In addition, plant and equipment has a market value of $343,222 and a book value of $362,145. The company's total current liabilities are valued at market for $134,889 and have a book value of $129,175. Both the book value and the market value of long-term debt is $144,000. If the company's total assets have a market value of $562,566 and a book value of $599,658, what is the difference between the book value and market value of its stockholders' equity?
4. Income statement: Nimitz Rental Company provided the following information to its auditors. For the year ended March 31, 2011, the company had revenues of $878,412, general and administrative expenses of $352,666, depreciation expenses of $131,455, leasing expenses of $108,195, and interest expenses equal to $78,122. If the company's tax rate is 34 percent, what is its net income after taxes?
5. Tax: Mount Hebron Electrical Company's financial statements indicated that the company had earnings before interest and taxes of $718,323. The interest rate on its $850,000 debt was 8.95 percent. Calculate the taxes the company is likely to owe. What are the marginal and average tax rates for this company?