Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 3, Problem 16PC
Interpreting the Statement of Cash Flows. Texas Instruments primarily develops and manufactures semiconductors for use in technology-based products for various industries. The manufacturing process is capital-intensive and subject to cyclical swings in the economy. Because of overcapacity in the industry and a cutback on spending for technology products due to a recession, semiconductor prices collapsed in Year 1 and commenced a steady comeback during Years 2 through 4.
Exhibit 3.19 presents a statement of cash flows for Texas Instruments for Year 0 to Year 4.
REQUIRED
Discuss the relations between net income and cash flows from operations and among cash flows from operating, investing, and financing activities for the firm over the five-year period.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
La Falaise Rouge Enterprises is deciding whether to expand its production
facilities. Although long-term cash flows are difficult to estimate,
management has projected the following cash flows for the first two years
(in millions of dollars). Calculate the unlevered net income for Year 2.
Revenues
Costs of goods sold and operating expenses other than depreciation
Depreciation
Increase in networking capital
Capital expenditures
Marginal corporate tax rate
Year 1
108
-36.6
-24.2
5.1
32.1
43%
Year 2
156
-36.6
-38.6
8.9
42.5
43%
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in
millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.)
Revenues
COGS and Operating expenses other than depreciation
Depreciation
Increase in net working capital
Capital expenditures
Marginal corporate tax rate
Year 1
103.7
43.3
a. What are the incremental earnings for this project for years 1 and 2?
b. What are the free cash flows for this project for the first two years?
a. What are the incremental earnings for this project for years 1 and 2?
The incremental earnings for year 1 is $
26.1
3.9
30.4
25%
million. (Round to one decimal place.)
The incremental earnings for year 2 is $
b. What are the free cash flows for this project for the first two years?
The free cash flow for year 1 is $
The free cash flow for year 2 is $
million.…
(Related to Checkpoint 13.1) (Forecasting cash flows using the expected value) Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch's CFO estimates that during the next year LH Transport's
cash flows from the acquisition will vary depending on the state of the local economy:
a. Calculate the expected cash flow for next year using the estimates provided above.
b. Assume the probability of a recession increases to 38 percent, the normal scenario probability remains at 53 percent, and the expansion probability drops to only 9 percent. What is your estimate of the expected cash flow for next year under
these circumstances?
c. Your analysis of the acquisition suggests that for the investment to have at least a zero NPV, it must produce an annual expected cash flow of $83,610 per year over the next five years. Assuming that the cash flow you estimated in part a is the
expected cash flow for Years one through five, what would you like to know…
Chapter 3 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 3 - Need for a Statement of Cash Flows. The accrual...Ch. 3 - Articulation of the Statement of Cash Flows with...Ch. 3 - Classification of Interest Expense. Under U.S....Ch. 3 - Prob. 4QECh. 3 - Classification of Changes in Short-Term Financing....Ch. 3 - Classification of Cash Flows Related to...Ch. 3 - Treatment of Non-Cash Exchanges. The acquisition...Ch. 3 - Computing Cash Collections from Customers....Ch. 3 - Computing Cash Payments to Suppliers. Lowes...Ch. 3 - Computing Cash Payments for Income Taxes. Visa...
Ch. 3 - Interpreting the Relation between Net Income and...Ch. 3 - Interpreting the Relation between Net Income and...Ch. 3 - Interpreting Relations among Cash Flows from...Ch. 3 - Interpreting Relations among Cash Flows from...Ch. 3 - Interpreting the Statement of Cash Flows. The...Ch. 3 - Interpreting the Statement of Cash Flows. Texas...Ch. 3 - Interpreting the Statement of Cash Flows. Tesla...Ch. 3 - Interpreting the Statement of Cash Flows. Gap Inc....Ch. 3 - Prob. 19PCCh. 3 - Prob. 20PCCh. 3 - Interpreting the Statement of Cash Flows....Ch. 3 - Extracting Performance Trends from the Statement...Ch. 3 - Interpreting a Direct Method Statement of Cash...Ch. 3 - Prob. 24PCCh. 3 - Preparing a Statement of Cash Flows from Balance...Ch. 3 - Prob. 26PCCh. 3 - Preparing a Statement of Cash Flows from Balance...Ch. 3 - Prob. 1AICCh. 3 - Prob. 1BICCh. 3 - Prob. 1CICCh. 3 - Prob. 1DICCh. 3 - Prob. 1EICCh. 3 - Prob. 1FICCh. 3 - Prob. 1GICCh. 3 - Prob. 1HICCh. 3 - Prob. 2AICCh. 3 - Prob. 2BICCh. 3 - Prob. 2CICCh. 3 - Prob. 2DICCh. 3 - Prob. 2EICCh. 3 - Prob. 2FICCh. 3 - Prob. 3IC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Your consulting firm was recently hired to improve the performance of RP Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?arrow_forward(Calculating free cash flows) Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will decline due to increased efficiencies in getting inventory to showrooms. As a result of this new distribution center, Spartan expects a change in EBIT of $900,000. Although inventory is expected to drop from $82,000 to $65,000, accounts receivables are expected to climb as a result of increased credit sales from $85,000 to $190,000. In addition, accounts payable are expected to increase from $67,000 to $84,000. This project will also produce $400,000 of bonus depreciation in year 1 and Spartan Stores is in the 35 percent marginal tax rate. What is the project's free cash flow in year 17 The project's free cash flow in year 1 is $ (Round to the nearest dollar) GTTSarrow_forwardElmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues COGS and Operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate Year 1 121.2 49.3 24.7 5.3 30.7 a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows for this project for the first two years? 35% a. What are the incremental earnings for this project for years 1 and 2? The incremental earnings for year 1 is million. (Round to one decimal place.) Year 2 159.8 57.3 32.8 8.9 38.4 35%arrow_forward
- Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues COGS and Operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate Year 1 101.2 48.1 22.7 3.1 31.6 a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows for this project for the first two years? 35% Year 2 160.1 38.1 35.2 7.8 40.6 35%arrow_forwardYou have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(a) what is your estimate of the firm’s current cash conversion cycle? Current inventory = $241,000.00 • Annual sales = $1,200,000.00 • Accounts receivable = $300,000.00 • Accounts payable = $245,000.00 • Total annual purchases = $600,000.00 • Purchases credit terms: net 30 days. • Receivables credit terms: net 50 days.arrow_forwardABC has a problem with its cash conversion cycle. Based on records, ABC has receivables, inventory and payable turnovers of 3.5, 5.6, and 7.7 times a year. The industry averages for ages of receivables, inventory and payables are 30, 60, and 45 days. Management of which working capital component should ABC prioritize to improve? Final answer must be the suggested decrease in average age of that specific component (e.g., if average age of receivables is to be decreased by 5.33 days, then final answer must be 5.33. Use 365 days in a year." answerarrow_forward
- You have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(a) what is your estimate of the firm’s current cash conversion cycle? • Current inventory = $ 180,000.00 • Annual sales = $ 700,000.00 • Accounts receivable = $ 165,000.00 • Accounts payable = $ 85,000.00 • Total annual purchases = $ 567,000.00 • Purchases credit terms: net 30 days. • Receivables credit terms: net 50 days.arrow_forwardYour consulting firm was recently hired to improve the performance of RP Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis. you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? Average inventory Annual sales Annual cost of goods seld Average accounts receivable Average accunts payable P5.000 P00.000 PH0,000 P0,000 F5000 140.6 days 120.6 days 133.6 days 148.0 days O 126.9 daysarrow_forwardYou have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(b) what is your Net Working Capital • Current inventory = $ 180,000.00 • Annual sales = $ 700,000.00 • Accounts receivable = $ 165,000.00 • Accounts payable = $ 85,000.00 • Total annual purchases = $ 567,000.00 • Purchases credit terms: net 30 days. • Receivables credit terms: net 50 days.arrow_forward
- Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?arrow_forwardConsolidated Natural Gas Company (CNG), with corporate headquarters in Pittsburgh, Pennsylvania, is one of the largest producers, transporters, distributors, and marketers of natural gas in North America. Periodically, the company experiences a decrease in the value of its gas- and oil-producing properties, and a special charge to income was recorded in order to reduce the carrying value of those assets. Assume the following information. In 2016, CNG estimated the cash inflows from its oil- and gas-producing properties to be $375,000 per year. During 2017, the write-downs described above caused the estimate to be decreased to $275,000 per year. Production costs (cash outflows) associated with all these properties were estimated to be $125,000 per year in 2016, but this amount was revised to $155,000 per year in 2017.Instructions(Assume that all cash flows occur at the end of the year.)(a) Calculate the present value of net cash flows for 2016–2018 (three years), using the 2016…arrow_forwardSummit Manufacturing’s most recent statements of cash flows indicate that the firm has paid large dividends to its stockholders in each of the past three years. Upon noting this information, A : potential investors would be more likely to invest in Summit, but potential lenders may be less likely to grant the company a loan. B : potential investors would be less likely to invest in Summit, but potential lenders may be more likely to grant the company a loan. C : potential investors would be less likely to invest in Summit, and potential lenders may be less likely to grant the company a loan. D : potential investors would be more likely to invest in Summit, and potential lenders may be more likely to grant the company a loan.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License