Finance Problems Solution Paper with Workings

Question 1

1. ABC's EBIT is $9 million. The depreciation expense is $0.5 million and interest expense is $0.5 million. The corporate tax rate is 30%. The company has 12 million in operating current assets and $6 million operating current liabilities. It has $5 million in net plant and equipment. The after-tax cost of capital (WACC) is 15%. Assume that the only non-cash item is depreciation. The total net operating capital last year was $8 million.

What was the company’s free cash flow for the year?

Question 2

1.Based on the following information, Compute the transfer to Retained Earnings for Year 2006. Assume a tax rate of 34%.

3.Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 4

1.An investor recently purchased a corporate bond that yields 9.3%. The investor is in the 31% combined federal and state tax bracket. What is the bond's after-tax yield?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 5

1.ABC Inc. recently reported net income of $3,022 and depreciation of $522. What is the net cash flow?

Question 6

1.ABC recently reported $40,987 of sales, $16,382of operating costs other than depreciation, and $5,770 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 5% interest rate. How much was the firm's taxable income, or earnings before taxes (EBT)?

Hint: Interest rate = Bonds outstanding * interest rate

Question 9

1.ABC corporation has operating income of $29,706. The company's depreciation expense is $8,422. The company is all equity-financed and it faces a tax rate of 36%. What is the company's net cash flow?

Question 11

1.ABC Corporation had $80,019 of taxable income. Compute the tax liability.

Question 16

1.ABC company had a taxable income of $203,601 from operations after all operating costs but before interest charges of $55,191, dividends received of $75,093, dividends paid of $5,000, and income taxes. What is the firm's income tax liability?

Hint: use the tax table to compute taxes.

Question 17

1.ABC company had a taxable income of $588,645 from operations after all operating costs but before interest charges of $58,760, dividends received of $56,349, dividends paid of $10,000, and income taxes. What is the firm's income tax liability?

Hint: use the tax table to compute taxes.

Question 18

1.ABC company had a taxable income of $560,840 from operations after all operating costs but before interest charges of $56,242, dividends received of $64,389, dividends paid of $10,000, and income taxes. What is the firm's after-tax income?

Hint: first use the tax table to compute taxes before calculating the after-tax income.

Question 22

1.During 2007, ABC had sales of $79,365. Cost of goods sold, administrative expenses and selling expenses, and depreciation expenses were $23,155, $6,006, and $10,304, respectively. In addition, the company had an interest expense of $4,131, and a tax rate of 38%. The company paid$8,914 as dividends. If the retained earnings is 2006 were $59,011, what are the retained earnings in 2007?

Question 23

1.Corporate Bonds issued by ABC Corporation currently issued 10.8%. Municipal Bonds of equal risk currently yield 6.3%. At what tax rate would an investor be indifferent between these two bonds?

Question 24

1.Calculate the shareholders' equity from the given information: