Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 10B, Problem 2SEB
To determine
Explain the manner that the given increase in value would be reflected in Company C’s financial statements for the year ended December 31, 2011.
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You are preparing pro forma financial statements for 2017 using the percent-of-sales method. Sales were $100,000 in 2016 and are projected to be $120,000 in 2017. Net income was $5,000 in 2016 and is projected to be $6,000 in 2017. Equity was $45,000 at year-end 2015 and $50,000 at year-end 2016. Assuming that this company never issues new equity, never repurchases equity, and never changes its dividend payout ratio, what would be projected for equity at year-end 2017?
(Analyzing the quality of firm earnings) Kabutell, Inc. had net income of $650,000, cash flow from financing activities of $90,000, depreciation expenses of
$60,000, and cash flow from operating activities of $550,000.
a. Calculate the quality of earnings ratio. What does this ratio tell you?
b. Kabutell, Inc. reported the following in its annual reports for 2011-2013:
($ million)
2011
Cash Flow from Operations
$480
Capital Expenditures (CAPEX)
$458
(Click on the icon in order to copy its contents into a spreadsheet.)
Calculate the average capital acquisitions ratio over the three-year period. How would you interpret these results?
2012
$401
$446
2013
$468
$457
The data table shows financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $11.7 million at the end of 2016, and this equipment was depreciated by $3.9 million per year in 2017, 2018, and 2019. Given Mydeco‘s tax rate of 35%, what impact would this additional purchase have had on Mydecco’s net income in years 2016-2019? Assume that the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances.
In the table, calculate the new net income below.
**round to one decimal place**
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