Chapter 2 Essay

1781 WordsJun 18, 20138 Pages
Chapter 2 Financial Statements, Cash Flow, and Taxes 1 Topics in Chapter        Income statement Balance sheet Statement of cash flows Free cash flow MVA and EVA Corporate taxes Personal taxes 2 Determinants of Intrinsic Value: Calculating FCF Sales revenues − Operating costs and taxes − Required investments in operating capital = Free cash flow (FCF) Value = FCF1 FCF2 FCF∞ + + ... + (1 + WACC)1 (1 + WACC)2 (1 + WACC)∞ Weighted average cost of capital (WACC) Market interest rates Market risk aversion Cost of debt Cost of equity Firm’s debt/equity mix Firm’s business risk 3 Income Statement 2009 2010 Sales COGS Other expenses Deprec. Tot. op. costs EBIT Int. expense $3,432,000 2,864,000 340,000 18,900 3,222,900 209,100 62,500 $5,834,400 4,980,000 720,000 116,960 5,816,960 17,440 176,000 EBT Taxes (40%) Net income $ 146,600 58,640 87,960 (158,560) (63,424) ($ 95,136) 4 What happened to sales and net income?     Sales increased by over $2.4 million. Costs shot up by more than sales. Net income was negative. However, the firm received a tax refund since it paid taxes of more than $63,424 during the past two years. 5 Balance Sheet: Assets 2009 2010 Cash S-T invest. AR Inventories Total CA Gross FA Less: Depr. Net FA Total assets $ 9,000 48,600 351,200 715,200 1,124,000 491,000 146,200 344,800 $1,468,800 $ 7,282 20,000 632,160 1,287,360 1,946,802 1,202,950 263,160 939,790 $2,886,592 6 Effect of Expansion on Assets    Net fixed assets almost tripled in size. AR and inventory almost doubled. Cash and short-term investments fell. 7 Balance Sheet: Liabilities & Equity 2009 2010 Accts. payable Notes payable Accruals Total CL Long-term debt Common stock Ret. earnings Total equity Total L&E $ 145,600 200,000 136,000 481,600 323,432 460,000 203,768

More about Chapter 2 Essay

Open Document