FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
10th Edition
ISBN: 9781260013962
Author: BREALEY
Publisher: RENT MCG
Question
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Chapter 3, Problem 8QP

a)

Summary Introduction

To determine: Current assets.

a)

Expert Solution
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Explanation of Solution

Note:

Current assets is calculated by adding cash, receivables and inventories.

Calculation of current assets:

Currentassets=Cash+Receivables+Inventories=$15+$35+$50=$100

Hence, current assets is $100

b)

Summary Introduction

To determine: Net fixed assets.

b)

Expert Solution
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Explanation of Solution

Note:

Net fixed assets are calculated by subtracting depreciation from the fixed assets.

Calculation of net fixed assets:

Netfixedassets=FixedassetsDepreciation=$520120=$400

Hence, Net fixed asset is $400.

c)

Summary Introduction

To determine: Total assets.

c)

Expert Solution
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Explanation of Solution

Note:

Total assets is calculated by adding the total current assets and net fixed assets.

Calculation of total assets:

Totalassets=Totalcurrentassets+Netfixedassets=$100+$400=$500

Hence, Total assets is $500

Total current assets are taken from part (a) and net fixed assets are taken from part (b) calculation.

d)

Summary Introduction

To determine: Current liabilities.

d)

Expert Solution
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Explanation of Solution

Note:

Current liabilities is calculated by adding debt due for payment and payables.

Calculation of current liabilities:

Currentliabilities=Debtdueforpayment+Payables=$25+$35=$60

Hence, current liabilities is $60

e)

Summary Introduction

To determine: Total liabilities.

e)

Expert Solution
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Explanation of Solution

Note:

Total liabilities is calculated by adding total current liabilities and long term debt.

Calculation of total liabilities:

Totalliabilities=Totalcurrentliabilities+Longtermdebt=$60+$350=$410

Hence, total liabilities is $410

f)

Summary Introduction

To determine: Total liabilities and shareholders equity.

f)

Expert Solution
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Explanation of Solution

Note:

Total liabilities and shareholders’ equity is calculated by adding total liabilities and shareholders’ equity amount.

Calculation of total liabilities and shareholders’ equity:

Totalliabilities &Shareholders' equity=Totalliabilities+ShareholdersEquity=$410+$90=$500

So, total liabilities & shareholders’ equity is $500.

g)

Summary Introduction

To determine: EBIT

g)

Expert Solution
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Explanation of Solution

Note:

Earnings before interest and tax is computed by deducting COGS, selling and administration expenses and depreciation from Net sales.

Calculation of EBIT:

EBIT=NetsalesCOGSselling&adminexpensesdepreciation=$700$580$38$12=$70

Hence, EBIT is $70.

h)

Summary Introduction

To determine: Taxable income.

h)

Expert Solution
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Explanation of Solution

Note:

Taxable income is calculated by deducting interest expenses from the EBIT.

Calculation of taxable income:

Taxableincome=EBITInterestexpenses=$70$25=$45

So taxable income is $45.

i)

Summary Introduction

To determine: Net income.

i)

Expert Solution
Check Mark

Explanation of Solution

Note:

Net income is calculated by deducting taxes from the total taxable income.

Calculation of taxable income:

Netincome=TaxableincomeTaxes=$45$15=$30

Hence, net income is $30.

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