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9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 1/16
Score: 21.71/22 Points 98.68 %
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 2/16
1. Award: 3 out of 3.00 points
ConstructabalancesheetforSophie’sSofasgiventhefollowingdata.(Besuretolisttheassetsand
liabilitiesinorderoftheirliquidity.)
Cashbalances = $ 12,000
Inventoryofsofas = $ 220,000
Storeandproperty = $ 120,000
Accountsreceivable = $ 24,000
Accountspayable = $ 19,000
Longtermdebt = $ 190,000
BALANCESHEETOFSOPHIE’SSOFAS
Assets Liabilities&Shareholders’Equity
Cash $12,000 Accountspayable $19,000 
Accountsreceivable24,000 Longtermdebt190,000 
Inventory220,000 Shareholders’equity167,000
Storeandproperty120,000 
Totalassets $376,000 Totalliabilities&shareholders'equity $376,000 
References
Worksheet LearningObjective:0301
Interprettheinformation
containedinthebalance
sheet,incomestatement,
andstatementofcash
flows.
ConstructabalancesheetforSophie’sSofasgiventhefollowingdata.(Besuretolisttheassetsand
liabilitiesinorderoftheirliquidity.)
Cashbalances = $ 12,000
Inventoryofsofas = $ 220,000
Storeandproperty = $ 120,000
Accountsreceivable = $ 24,000
Accountspayable = $ 19,000
Longtermdebt = $ 190,000
BALANCESHEETOFSOPHIE’SSOFAS
Assets Liabilities&Shareholders’Equity
Cash $
12,000
Accountspayable $
19,000

Accountsreceivable
24,000
Longtermdebt
190,000

Inventory
220,000
Shareholders’equity
167,000±.1%

Storeandproperty
120,000

Totalassets $
376,000±0.1%
Totalliabilities&shareholders'equity $
376,000±0.1%

9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 3/16
2. Award: 3 out of 3.00 points
Afirm’sincomestatementincludedthefollowingdata.Thefirm’saveragetaxratewas25%.
Costofgoodssold $9,700
Incometaxespaid 3,700
Administrativeexpenses 4,700
Interestexpense 2,700
Depreciation 2,700
a. Whatwasthefirm’snetincome?
Netincome $11,100
b. Whatmusthavebeenthefirm’srevenues?
Revenues $34,600
c. WhatwasEBIT?
EBIT $17,500
References
Worksheet LearningObjective:0301
Interprettheinformation
containedinthebalance
sheet,incomestatement,
andstatementofcash
flows.
Afirm’sincomestatementincludedthefollowingdata.Thefirm’saveragetaxratewas25%.
Costofgoodssold $9,700
Incometaxespaid 3,700
Administrativeexpenses 4,700
Interestexpense 2,700
Depreciation 2,700
a. Whatwasthefirm’snetincome?
Netincome $
11,100±.1%

b. Whatmusthavebeenthefirm’srevenues?
Revenues $
34,600±.1%

9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 4/16
c. WhatwasEBIT?
EBIT $
17,500±.1%

Explanation:
a.
Ifthefirmpaidincometaxesof$3,700andtheaveragetaxratewas25%,thentaxableincomemusthave
been:$3,700/.25=$14,800.
Therefore:Netincome=Taxableincome−Taxes=$11,100
b.

Revenues $ ???
Costofgoodssold 9,700
Administrativeexpenses 4,700
Depreciationexpense 2,700
Interestexpense 2,700
Taxableincome $ 14,800[frompart(a)]
Weconcludethatrevenueswere$34,600.
c.
Revenues $ 34,600
Costofgoodssold 9,700
Administrativeexpenses 4,700
Depreciationexpense 2,700
EBIT $ 17,500
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 5/16
3. Award: 2 out of 2.00 points
Theyearend2013balancesheetofBrandexInc.listedcommonstockandotherpaidincapitalat
$2,300,000andretainedearningsat$4,600,000.Thenextyear,retainedearningswerelistedat
$4,900,000.Thefirm’snetincomein2014was$1,020,000.Therewerenostockrepurchasesduringthe
year.Whatwerethedividendspaidbythefirmin2014?
Dividendspaid $720,000 
References
Worksheet LearningObjective:0301
Interprettheinformation
containedinthebalance
sheet,incomestatement,
andstatementofcash
flows.
Theyearend2013balancesheetofBrandexInc.listedcommonstockandotherpaidincapitalat
$2,300,000andretainedearningsat$4,600,000.Thenextyear,retainedearningswerelistedat
$4,900,000.Thefirm’snetincomein2014was$1,020,000.Therewerenostockrepurchasesduringthe
year.Whatwerethedividendspaidbythefirmin2014?
Dividendspaid $
720,000±0.1%

Explanation:
Netincome=Increaseinretainedearnings+Dividends
$1,020,000=($4,900,000−4,600,000)+Dividends Dividends=$720,000
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 6/16
4. Award: 1.71 out of 2.00 points
SouthSeaBaubleshasthefollowing(incomplete)balancesheetandincomestatement.
BALANCESHEETATENDOFYEAR
(Figuresin$millions)
Assets 2013 2014 LiabilitiesandShareholders'Equity 2013 2014
Currentassets 98 180 Currentliabilities 66 84
Netfixedassets 880 980 Longtermdebt 640 830
INCOMESTATEMENT,2014
(Figuresin$millions)
Revenue 1,990
Costofgoodssold 1,070
Depreciation 390
Interestexpense 248
a. Whatisshareholders’equityin2013and2014?(Enteryouranswersinmillions.)
 2013 2014
Shareholders'equity $272 million $246 million
b. Whatisnetworkingcapitalin2013and2014?(Enteryouranswersinmillions.)
 2013 2014
Networkingcapital $32 million $96 million
c. What are taxes paid in 2014? Assume the firm pays taxes equal to 35% of taxable income.(Do not
roundintermediatecalculations.Enteryouranswerinmillionsroundedto2decimalplaces.)
Taxespaid $183.30 million
d. What is cash provided by operations during 2014? (Do not round intermediate calculations. Enter
youranswerinmillionsroundedto2decimalplaces.)
Cashprovidedbyoperations $509.30 million
e. Netfixedassetsincreasedfrom$880millionto$980millionduring2014.WhatmusthavebeenSouth
Sea’sgrossinvestmentinfixedassetsduring2014?(Enteryouranswerinmillions.)
Grossinvestment $490 million
rev:04_01_2016_QC_CS47230
References
Worksheet LearningObjective:0301
Interprettheinformation
containedinthebalance
sheet,incomestatement,
andstatementofcash
flows.
LearningObjective:0304Understandtheessential
featuresofthetaxationofcorporateandpersonal
income.
SouthSeaBaubleshasthefollowing(incomplete)balancesheetandincomestatement.
BALANCESHEETATENDOFYEAR
(Figuresin$millions)
Assets 2013 2014 LiabilitiesandShareholders'Equity 2013 2014
Currentassets 98 180 Currentliabilities 66 84
Netfixedassets 880 980 Longtermdebt 640 830
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 7/16
INCOMESTATEMENT,2014
(Figuresin$millions)
Revenue 1,990
Costofgoodssold 1,070
Depreciation 390
Interestexpense 248
a. Whatisshareholders’equityin2013and2014?(Enteryouranswersinmillions.)
 2013 2014
Shareholders'equity $
million $
246±1%
million
b. Whatisnetworkingcapitalin2013and2014?(Enteryouranswersinmillions.)
 2013 2014
Networkingcapital $
32±1%
million $
96±1%
million
c. What are taxes paid in 2014? Assume the firm pays taxes equal to 35% of taxable income.(Do not
roundintermediatecalculations.Enteryouranswerinmillionsroundedto2decimalplaces.)
Taxespaid $
98.70±1%
million
d. What is cash provided by operations during 2014? (Do not round intermediate calculations. Enter
youranswerinmillionsroundedto2decimalplaces.)
Cashprovidedbyoperations $
509.30±1%
million
e. Netfixedassetsincreasedfrom$880millionto$980millionduring2014.WhatmusthavebeenSouth
Sea’sgrossinvestmentinfixedassetsduring2014?(Enteryouranswerinmillions.)
Grossinvestment $
million
rev:04_01_2016_QC_CS47230
Explanation:
a.
Shareholders'equity=Totalassets–Totalliabilities
2013:Shareholders'equity=$978–706=$272
2014:Shareholders'equity=$1,160–914=$246
b.
Networkingcapital=Currentassets–Currentliabilities
2013:Networkingcapital=$98–66=$32
2014:Networkingcapital=$180–84=$96
c.
Taxableincome=$1,990–1,070–390–248=$282
Taxespaid=.35×$282=$98.70
Netincome=$183.30
d.

Netincome $183.30
Depreciation 390.00
Decrease(increase)innetworkingcapital (64.00)
Cashprovidedbyoperations $509.30
e.
Grossinvestment=Increaseinnetfixedassets+Depreciation
=$100+390
=$490
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 8/16
5. Award: 2 out of 2.00 points
ThefounderofAlchemyProducts,Inc.,discoveredawaytoturnleadintogoldandpatentedthisnew
technology.Hethenformedacorporationandinvested$1,200,000insettingupaproductionplant.He
believesthathecouldsellhispatentfor$48million.
a. Whatarethebookvalueandmarketvalueofthefirm?(Enteryouranswersindollarsnotin
millions.)
Bookvalue $1,200,000 
Marketvalue $49,200,000
b. Ifthereare2millionsharesofstockinthenewcorporation,whatwouldbethepricepershareandthe
bookvaluepershare?(Roundyouranswersto2decimalplaces.)
Pricepershare $24.60 
Bookvaluepershare $.60 
References
Worksheet LearningObjective:0302
Distinguishbetween
marketandbookvalues.
ThefounderofAlchemyProducts,Inc.,discoveredawaytoturnleadintogoldandpatentedthisnew
technology.Hethenformedacorporationandinvested$1,200,000insettingupaproductionplant.He
believesthathecouldsellhispatentfor$48million.
a. Whatarethebookvalueandmarketvalueofthefirm?(Enteryouranswersindollarsnotin
millions.)
Bookvalue $
1,200,000±0.1%

Marketvalue $
49,200,000±0.01%

b. Ifthereare2millionsharesofstockinthenewcorporation,whatwouldbethepricepershareandthe
bookvaluepershare?(Roundyouranswersto2decimalplaces.)
Pricepershare $
24.60±1%

Bookvaluepershare $
.60±0.01

Explanation:
a.
Bookvalueequalsthe$1,200,000thefounderofthefirmhascontributedintangibleassets.Marketvalue
equalsthevalueofhispatentplusthevalueoftheproductionplant:$48,000,000+1,200,000=
$49,200,000.
FPL
PPLEPILEELEELLEEL
EPL
EELEE
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weecccrercccrrcccccrrcccrcrrered
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 9/16
b.
Pricepershare=$49.2million/2millionshares=$24.60
Bookvaluepershare=$1,200,000/2millionshares=$.60
9/21/2016 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx?todo=printview 10/16
6. Award: 2 out of 2.00 points
ButterflyTractorshad$19.00millioninsaleslastyear.Costofgoodssoldwas$9.00million,depreciation
expensewas$3.00million,interestpaymentonoutstandingdebtwas$2.00million,andthefirm’staxrate
was35%.
a. What werethefirm’s net incomeand netcashflow? (Enter your answers in millions rounded to 2
decimalplaces.)
Netincome $3.25 million
Netcashflow $6.25 million
b. Whatwouldhappentonetincomeandcashflowifdepreciationwereincreasedby$2.00million?(Input
allamountsaspositivevalues.Enteryouranswersinmillionsroundedto2decimalplaces.)
Netincome decreased by $1.30 million
Cashflow increased by $.70 million
c. Would you expect the change in income and cash flow to have a positive or negative impact on the
firm’sstockprice?
Positive
d. What would be the impact on net income if depreciation was $2.00 million and interest expense was
$3.00million?
Nochange
e. What would be the impact on cash if depreciation was $2.00 million and interest expense was $3.00
million?
Decrease
References
Worksheet LearningObjective:0303
Explainwhyincomediffers
fromcashflow.
ButterflyTractorshad$19.00millioninsaleslastyear.Costofgoodssoldwas$9.00million,depreciation
expensewas$3.00million,interestpaymentonoutstandingdebtwas$2.00million,andthefirm’staxrate
was35%.
a. What werethefirm’s net incomeand netcashflow? (Enter your answers in millions rounded to 2
decimalplaces.)
Netincome $
3.25±1%
million
Netcashflow $
6.25±1%
million
b. Whatwouldhappentonetincomeandcashflowifdepreciationwereincreasedby$2.00million?(Input
allamountsaspositivevalues.Enteryouranswersinmillionsroundedto2decimalplaces.)
Netincome decreasedby $
1.30±0.01
million
Cashflow increasedby $
.70±0.01
million
9/21/2016 AssignmentPrintView
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c. Would you expect the change in income and cash flow to have a positive or negative impact on the
firm’sstockprice?
Positive
d. What would be the impact on net income if depreciation was $2.00 million and interest expense was
$3.00million?
Nochange
e. What would be the impact on cash if depreciation was $2.00 million and interest expense was $3.00
million?
Decrease
Explanation:
a.
($inmillions)
Sales $ 19.00
Costofgoodssold 9.00
Depreciationexpense 3.00
Interestexpense 2.00
Taxableincome $ 5.00
Taxes(35%) 1.75
Netincome $ 3.25
Netcashflow=Netincome+Depreciationexpense=$6.25million
b.
If depreciation expense were increased by $2.00 million, net income would be reduced by $1.30 million.
Cash flow = (Net income + Depreciation) would be increased by − $1.30 million + 2.00 million = $.70
million.
Cashflowincreases becausedepreciationexpenseis not acashoutflow,butincreasing thedepreciation
expensefortaxpurposesreducestaxespaidby$.70million.
c.
Theimpactonstockpriceislikelytobepositive.Cashavailabletothefirmwouldincrease.Thereduction
innetincomewouldberecognizedasresultingentirelyfromaccountingchanges,notasaconsequenceof
anychangesintheunderlyingprofitabilityofthefirm.
d.
Thenetincomewouldnotchange.Thetaxableincomewouldremainthesame,aswouldnetincome.
e.
Ifinterestexpensewas$1.00millionhigherandthedepreciationwas$1.00millionlower,thetaxeswillbe
thesame,buttheincreaseininterestexpensewouldcauseadecreaseincashflowby$1.00million.
9/21/2016 AssignmentPrintView
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7. Award: 2 out of 2.00 points
Sheryl’sShippinghadsaleslastyearof$18,500.Thecostofgoodssoldwas$8,200,generaland
administrativeexpenseswere$2,700,interestexpenseswere$2,200,anddepreciationwas$2,700.The
firm’staxrateis40%.
a. Whatareearningsbeforeinterestandtaxes?
Earningsbeforeinterestandtaxes $4,900 
b. Whatisnetincome?
Netincome $1,620
c. Whatiscashflowfromoperations?
Cashflowfromoperations $4,320
References
Worksheet LearningObjective:0303
Explainwhyincomediffers
fromcashflow.
Sheryl’sShippinghadsaleslastyearof$18,500.Thecostofgoodssoldwas$8,200,generaland
administrativeexpenseswere$2,700,interestexpenseswere$2,200,anddepreciationwas$2,700.The
firm’staxrateis40%.
a. Whatareearningsbeforeinterestandtaxes?
Earningsbeforeinterestandtaxes $
4,900±0.1%

b. Whatisnetincome?
Netincome $
1,620±1%

c. Whatiscashflowfromoperations?
Cashflowfromoperations $
4,320±0.1%

Explanation:
a.&b.
Sales $ 18,500
Costofgoodssold 8,200
General&administrativeexpenses 2,700
Depreciationexpense 2,700
EBIT $ 4,900
Interestexpense 2,200
Taxableincome $ 2,700
Taxes(40%) 1,080
Netincome $ 1,620
c.
Cashflowfromoperations=Netincome+Depreciationexpense=$4,320
9/21/2016 AssignmentPrintView
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8. Award: 2 out of 2.00 points
During the last year of operations, Theta’s accounts receivable increased by $24,000, accounts payable
increasedby$12,000,andinventoriesdecreasedby$2,600.Whatisthetotalimpactofthesechangeson
thedifferencebetweenprofitsandcashflow?(Inputyouranswerasapositivevalue.)
Totalimpact $9,400
References
Worksheet LearningObjective:0303
Explainwhyincomediffers
fromcashflow.
During the last year of operations, Theta’s accounts receivable increased by $24,000, accounts payable
increasedby$12,000,andinventoriesdecreasedby$2,600.Whatisthetotalimpactofthesechangeson
thedifferencebetweenprofitsandcashflow?(Inputyouranswerasapositivevalue.)
Totalimpact $
9,400

Explanation:
An increase in accounts receivable reduces cash flow by $24,000. An increase in accounts payable
increasescashflowby$12,000.Adecreaseininventoryincreasescashflowby$2,600.Thetotalimpact
isareductionincashflowby$9,400.
9/21/2016 AssignmentPrintView
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9. Award: 2 out of 2.00 points
ThefollowingtableshowsanabbreviatedincomestatementandbalancesheetforMcDonald'sCorporation
for2012.
INCOMESTATEMENTOFMCDONALD’SCORP.,2012
(Figuresin$millions)
Netsales 27,575
Costs 17,577
Depreciation 1,410
Earningsbeforeinterestandtaxes(EBIT) 8,588
Interestexpense 525
Pretaxincome 8,063
Taxes 2,630
Netincome 5,433
BALANCESHEETOFMCDONALD’SCORP.,2012
(Figuresin$millions)
Assets 2012 2011 LiabilitiesandShareholders'equity 2012 2011
Currentassets   Currentliabilities  
Cashandmarketablesecurities 2,344 2,344 Debtdueforrepayment — 391
Receivables 1,383 1,343 Accountspayable 3,411 3,151
 
Inventories 130 125 Totalcurrentliabilities 3,411 3,542
Othercurrentassets 1,097 624  
 
Totalcurrentassets 4,954 4,436  
Fixedassets   Longtermdebt 13,641 12,142
Property,plant,andequipment 24,685 22,843 Otherlongtermliabilities 3,065 2,965
Intangibleassets(goodwill) 2,812 2,661 Totalliabilities 20,117 18,649
Otherlongtermassets 2,991 3,107 Totalshareholders’equity 15,325 14,398
Totalassets 35,442 33,047 Totalliabilitiesandshareholders’equity 35,442 33,047
In2012McDonald’shadcapitalexpendituresof$3,057.
a. CalculateMcDonald’sfreecashflowin2012.(Enteryouranswerinmillions.)
Freecashflow $4,053 million
b. If McDonald’s was financed entirely by equity, how much more tax would the company have paid?
(Assumeataxrateof35%ontherevisedpretaxincome.)(Donot roundintermediatecalculations.
Enteryouranswerinmillionsroundedtothenearestwholenumber.)
Additionaltax $376 million
References
Worksheet LearningObjective:0303
Explainwhyincomediffers
fromcashflow.
ThefollowingtableshowsanabbreviatedincomestatementandbalancesheetforMcDonald'sCorporation
for2012.
INCOMESTATEMENTOFMCDONALD’SCORP.,2012
(Figuresin$millions)
9/21/2016 AssignmentPrintView
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Netsales 27,575
Costs 17,577
Depreciation 1,410
Earningsbeforeinterestandtaxes(EBIT) 8,588
Interestexpense 525
Pretaxincome 8,063
Taxes 2,630
Netincome 5,433
BALANCESHEETOFMCDONALD’SCORP.,2012
(Figuresin$millions)
Assets 2012 2011 LiabilitiesandShareholders'equity 2012 2011
Currentassets   Currentliabilities
Cashandmarketablesecurities 2,344 2,344 Debtdueforrepayment — 391
Receivables 1,383 1,343 Accountspayable 3,411 3,151
Inventories 130 125 Totalcurrentliabilities 3,411 3,542
Othercurrentassets 1,097 624 

Totalcurrentassets 4,954 4,436
Fixedassets   Longtermdebt 13,641 12,142
Property,plant,andequipment 24,685 22,843 Otherlongtermliabilities 3,065 2,965
Intangibleassets(goodwill) 2,812 2,661 Totalliabilities 20,117 18,649
Otherlongtermassets 2,991 3,107 Totalshareholders’equity 15,325 14,398
Totalassets 35,442 33,047 Totalliabilitiesandshareholders’equity 35,442 33,047
In2012McDonald’shadcapitalexpendituresof$3,057.
a. CalculateMcDonald’sfreecashflowin2012.(Enteryouranswerinmillions.)
Freecashflow $
4,053±0.1%
million
b. If McDonald’s was financed entirely by equity, how much more tax would the company have paid?
(Assumeataxrateof35%ontherevisedpretaxincome.)(Donot roundintermediatecalculations.
Enteryouranswerinmillionsroundedtothenearestwholenumber.)
Additionaltax $
million
Explanation:
a.
Cashflowfromoperations=Netincome+Interest+Depreciation–Additionstonetworkingcapital
Freecashflow=Cashflowfromoperations–Capitalexpenditures
Additionstonetworkingcapital=($1,383+130+1,097–3,411)($1,343+125+624–3,151)=$258
Cashflowfromoperations=$5,433+525+1,410–258=$7,110
Capitalexpenditures=$3,057
Freecashflow=$7,110–3,057=$4,053
b.
INCOMESTATEMENT
Netsales $27,575 $27,575
Costs 17,577 17,577
Depreciation 1,410 1,410
Earningsbeforeinterestandtaxes(EBIT) $ 8,588 $ 8,588
Interestexpense 0 525
Pretaxincome $ 8,588 $ 8,063
Taxes 3,006 2,630
Netincome $ 5,582 $ 5,433
Additionaltax=$3,006–2,630=$376
9/21/2016 AssignmentPrintView
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10. Award: 2 out of 2.00 points
What wouldbethemarginaland averagetaxratesfor a married couple withtaxableincomeof $91,000?
For an unmarried taxpayer with the same income? Use Table 3.7. (Do not round intermediate
calculations. Enter the marginal tax rates as a whole percent. Enter the average tax rates as a
percentroundedto2decimalplaces.)
Marginaltaxrate Averagetaxrate
Marriedcouple 25 % 15.89 %
Singleperson 28 % 20.50 %
References
Worksheet LearningObjective:0304
Understandtheessential
featuresofthetaxationof
corporateandpersonal
income.
What wouldbethemarginaland averagetaxratesfor a married couple withtaxableincomeof $91,000?
For an unmarried taxpayer with the same income? Use Table 3.7. (Do not round intermediate
calculations. Enter the marginal tax rates as a whole percent. Enter the average tax rates as a
percentroundedto2decimalplaces.)
Marginaltaxrate Averagetaxrate
Marriedcouple
25
%
15.89±1%
%
Singleperson
28
%
20.50±1%
%
Explanation:
Foramarriedcouple,themarginaltaxrateon$91,000ofincomeis25%.
Taxes=($18,150×.10)+(($73,800–18,150)×.15)+(($91,000–73,800)×.25)=$14,462.50
Theaveragetaxrate=$14,462.50/$91,000=.1589,or15.89%
Forasingleperson,themarginaltaxrateon$91,000ofincomeis28%.
Taxes=($9,075×.10)+(($36,900–9,075)×.15)+(($89,350–36,900)×.25)+(($91,000–89,350)×.28)=$18,655.75
Theaveragetaxrate=$18,655.75/$91,000=.2050,or20.50%
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