Chapter 2

Problems 1-22

Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green

NOTE: Some functions used in these spreadsheets may require that

the "Analysis ToolPak" or "Solver Add-In" be installed in Excel.
To install these, click on the File tab
then "Options," "Add-Ins" and select
"Go." Check "Analyis ToolPak" and
"Solver Add-In," then click "OK."
equire that
Chapter 2
Question 1

Input area:

Current assets $ 4,900

Net fixed assets $ 27,300

Current liabilities $ 4,100

Long-term debt $ 10,200

Output area:

Balance sheet
Current assets $ 4,900 Current liabilities $ 4,100
Net fixed assets 27,300 Long-term debt 10,200
Owner's equity 17,900
Total liabilities
Total assets $ 32,200 +total equity $ 32,200

Owner's equity $ 17,900

Net working capital $ 800

Chapter 2
Questions 2-4

Input area:

Sales $ 796,000
Costs $ 327,000
Depreciation expense $ 42,000
Interest expense $ 34,000

Tax rate 21%

Cash dividends $ 95,000

Shares outstanding 80,000

Output area:

Income Statement
Sales $ 796,000
Costs 327,000
Depreciation expense 42,000
EBIT $ 427,000
Interest expense 34,000
EBT $ 393,000
Taxes (21%) 82,530
Net income $ 310,470

Addition to retained earnings $ 215,470

Earnings per share $ 3.88

Dividends per share $ 1.19

Chapter 2
Question 5

Input area:

Sales $ 46,200
Costs $ 23,100
Depreciation Expense $ 2,200
Interest Expense $ 1,700

Tax rate 22%

Output area:

Income Statement
Sales $ 46,200
Costs 23,100
Depreciation expense 2,200
EBIT $ 20,900
Interest expense 1,700
EBT $ 19,200
Taxes (22%) 4,224
Net income $ 14,976

Operating cash flow $ 18,876

Chapter 2
Question 6

Input area:

Dec. 31, 2017 net fixed assets $ 2,400,000

Dec. 31, 2018 net fixed assets $ 3,300,000

Depreciation expense $ 319,000

Output area:

Net capital spending $ 1,219,000

Chapter 2
Question 7

Input area:

Dec. 31, 2017 Current assets $ 4,810

Dec. 31, 2017 Current liabilities $ 2,230

Dec. 31, 2018 current assets $ 5,360

Dec. 31, 2018 current liabilities $ 2,970

Output area:

Ending NWC $ 2,390

Beginning NWC $ 2,580

Additions to net working capital $ (190)

Chapter 2
Question 8

Input area:

Dec. 31, 2017 Long-term debt $ 1,870,000

Dec. 31, 2018 Long-term debt $ 2,210,000

Interest expense $ 255,000

Output area:

Cash flow to creditors $ (85,000)

Chapter 2
Question 9

Input area:

Dec. 31, 2017 Common stock $ 650,000

Dec. 31, 2017 Additional paid-in surplus $ 3,980,000

Dec. 31, 2018 Common stock $ 805,000

Dec. 31, 2018 Additional paid-in surplus $ 4,200,000

Cash dividends $ 545,000

Output area:

Cash flow to stockholders $ 170,000

Chapter 2
Question 10

Input area:

From problems 10, 11:

2018 Cash flow to creditors $ (85,000)
2018 Cash flow to stockholders $ 170,000

New information:
2018 Net capital spending $ 1,250,000
Change in net working capital $ (45,000)

Output area:

Cash flow from assets $ 85,000

Operating cash flow $ 1,290,000

Chapter 2
Question 11

Input area:

Market value of net fixed assets $ 5,100,000

Book value of net fixed assets $ 3,400,000
Book value of current liabilities $ 895,000
Net working capital $ 235,000
Market value of current assets $ 1,150,000

Output area:

Net working capital $ 235,000

Current liabilities 895,000
Book value of current assets $ 1,130,000
Book value of net fixed assets 3,400,000
Book value of total assets $ 4,530,000

Market value of current assets $ 1,150,000

Market value of net fixed assets 5,100,000
Market value of total assets $ 6,250,000
 Chapter 2
Question 12

Input area:

Sales $ 305,000
Costs $ 176,000
Other expenses $ 8,900
Depreciation expense $ 18,700
Interest expense $ 12,900
Taxes $ 23,345
Dividends $ 19,500

2018 New equity $ 6,400

Net new long-term debt $ (4,900)
Change in fixed assets $ 46,000

Output area:

Income Statement
Sales $ 305,000
Costs 176,000
Other expenses 8,900
Depreciation expense 18,700
EBIT $ 101,400
Interest expense 12,900
EBT $ 88,500
Taxes 23,345
Net income $ 65,155

Dividends $ 19,500
Addition to retained earnings $ 45,655

a. Operating cash flow $ 96,755

b. Cash flow to creditors $ 17,800

c. Cash flow to stockholders $ 13,100

d. Cash flow from assets $ 30,900

Net capital spending $ 64,700

Change in NWC $ 1,155
Chapter 2
Question 13

Input area:

Sales $ 64,000
Costs $ 30,700
Addition to retained earnings $ 5,700
Dividends paid $ 1,980
Interest expense $ 4,400
Tax rate 22%

Output area:

Income Statement
Sales $ 64,000
Costs 30,700
Depreciation expense $ 19,054
EBIT $ 14,246
Interest expense 4,400
EBT $ 9,846
Taxes 2,166
Net income $ 7,680
Dividends $ 1,980
Addition to retained earnings $ 5,700
Chapter 2
Question 14

Input area:

Cash $ 127,000
Intangible net fixed assets $ 660,000
Accounts payable $ 210,000
Accounts receivable $ 115,000
Tangible net fixed assets $ 1,610,000
Inventory $ 286,000
Notes payable $ 155,000
Accumulated retained earnings $ 1,368,000
Long-term debt $ 830,000

Output area:

Balance sheet as of Dec. 31, 2018

Cash $ 127,000
Accounts receivable 115,000
Inventory 286,000
Current assets $ 528,000

Tangible net fixed assets $ 1,610,000

Intangible net fixed assets 660,000
Total assets $ 2,798,000
sheet as of Dec. 31, 2018
Accounts payable $ 210,000
Notes payable 155,000
Current liabilities $ 365,000
Long-term debt 830,000
Total liabilities $ 1,195,000

Common stock $ 235,000

Accumulated retained earnings 1,368,000
Total liability & owners' equity $ 2,798,000
 Chapter 2
Question 15

Input area:

Total liabilities $ 7,800

a. Total assets $ 9,400

b. Total assets $ 6,700

Output area:

a. Owners' equity $ 1,600

b. Owners' equity 0
 Chapter 2
Question 16

Input area:

Sales $ 705,000
Costs $ 445,000
Administrative and selling expenses $ 95,000
Depreciation expense $ 140,000
Interest expense $ 70,000
Tax rate 25%

Output area:

Income Statement
Sales $ 705,000
Costs 445,000
Administrative and selling expenses 95,000
Depreciation expense 140,000
EBIT $ 25,000
Interest expense 70,000
EBT $ (45,000)
Taxes (25%) 0
a. Net income $ (45,000)

b. Operating cash flow $ 165,000

c. Net income was negative because of the tax

deductibility of depreciation and interest expense.
However, the actual cash flow from operations was
positive because depreciation is a non-cash expense
and interest is a financing expense, not an operating.
Chapter 2
Question 17

Input area:

From Problem 19:

Operating Cash Flow $ 165,000
Interest $ 70,000

New information:
Cash dividend $ 102,000
New investment in net fixed income 0
New investment in net working capital 0
New stock issued during year 0
Net capital spending 0
Net new equity 0

Output area:

Cash flow from assets $ 165,000

Cash to stockholders $ 102,000
Cash flow to creditors $ 63,000

Net new long-term debt $ 7,000

A firm can still pay out dividends if net income is

negative; it just has to be sure there is sufficient
cash flow to make dividend payments.
 Chapter 2
Question 18

Input area:

Sales $ 33,106
Cost of goods sold $ 23,624
Depreciation expense $ 5,877
Interest expense $ 2,650
Dividends paid $ 1,888
New debt issued $ -

2017 Net fixed assets $ 19,820

2017 Current assets $ 6,970
2017 Current liabilities $ 3,920

2018 Net fixed assets $ 24,394

2018 Current assets $ 8,612
2018 Current liabilities $ 4,575

Tax rate 22%

Output area:

Income Statement
Sales $ 33,106
Costs 23,624
Depreciation expense 5,877
EBIT $ 3,605
Interest expense 2,650
EBT $ 955
Taxes (22%) 210
a. Net income $ 745

b. Operating cash flow $ 9,272

c. Ending NWC $ 4,037

Beginning NWC $ 3,050
Change in net working capital $ 987
Net capital spending $ 10,451

Cash flow from assets $ (2,166)

 The cash flow from assets can be positive or negative, since it represents whether
the firm raised funds or distributed funds on a net basis. In this problem, even though
net income and OCF are positive, the firm invested heavily in both fixed assets and net
working capital; it had to raise a net $2,166 in funds from its stockholders and
creditors to make these investments.

d. Cash flow to creditors $ 2,650

Cash flow to stockholders $ (4,816)

New equity $ 6,704

The firm has positive earnings in the accounting sense (NI>0) and had positive cash flow
from operations. The firm invested $987 in new NWC and $10,451
in new fixed assets. The firm had to raise $2,166 from its
stakeholders to support this new investment. It accomplished this by raising $6,704
in the form of equity. After paying out $1,888 of this in the form of dividends to
shareholders and $2,650 in the form of interest to creditors,
$2,166 was left to just meet the firm's cash flow needs
for investment.
 Chapter 2
Question 19

Input area:

Sales $ 15,301
Cost of goods sold $ 7,135
Depreciation expense $ 1,363
Interest expense $ 388

2017 Current assets $ 1,206

2017 Net fixed assets $ 4,973
2017 Current liabilities $ 482
2017 Long-term debt $ 2,628

2018 Current assets $ 1,307

2018 Net fixed assets $ 5,988
2018 Current liabilities $ 541
2018 Long-term debt $ 2,795

2018 New fixed assets purchased $ 2,496

2018 New long-term debt $ 504
Tax rate 21%

Output area:

Income Statement
Sales $ 15,301
Costs 7,135
Depreciation expense 1,363
EBIT $ 6,803
Interest expense 388
EBT $ 6,415
Taxes (21%) 1,347
Net income $ 5,068

a. 2017 Total assets $ 6,179

2017 Total liabilities $ 3,110
2017 Owners' equity $ 3,069

2018 Total assets $ 7,295

2018 Total liabilities $ 3,336
2018 Owners' equity $ 3,959
b. 2017 Net working capital $ 724
2018 Net working capital $ 766
Change in net working capital $ 42
c. Net capital spending $ 2,378
Fixed assets sold $ 118

2018 Operating cash flow $ 6,819

Cash flow from assets $ 4,399

d. Net new borrowing $ 167

Cash flow to creditors $ 221
Debt retired $ 337
Chapter 2
Question 23

Net capital spending = NFAend - NFAbeg + Depreciation

= (NFAend - NFAbeg) + (Depreciation + ADbeg) - ADbeg
= (NFAend - NFAbeg) + ADend - ADbeg
= (NFAend + ADend) - (NFAbeg + ADbeg)
= FAend - FAbeg
Chapter 2
Question 22

Input area:

2017 2018
Sales $ 16,549 $ 18,498
Depreciation $ 2,376 $ 2,484
Cost of goods sold $ 5,690 $ 6,731
Other expenses $ 1,353 $ 1,178
Interest $ 1,110 $ 1,325
Cash $ 8,676 $ 9,247
Accounts receivable $ 11,488 $ 13,482
Short-term notes payable $ 1,674 $ 1,641
Long-term debt $ 29,060 $ 35,229
Net fixed assets $ 72,770 $ 77,610
Accounts payable $ 6,269 $ 6,640
Inventory $ 20,424 $ 21,862
Dividends $ 1,979 $ 2,314

Tax rate 21% 21%

Output area:

Balance sheet as of Dec. 31, 2017

Cash $ 8,676 Accounts payable
Accounts receivable 11,488 Notes payable
Inventory 20,424 Current liabilities
Current assets $ 40,588
Long-term debt
Net fixed assets $ 72,770 Owners' equity
Total assets $ 113,358 Total liab. & equity

Balance sheet as of Dec. 31, 2018

Cash $ 9,247 Accounts payable
Accounts receivable 13,482 Notes payable
Inventory 21,862 Current liabilities
Current assets $ 44,591
Long-term debt
Net fixed assets $ 77,610 Owners' equity
Total assets $ 122,201 Total liab. & equity
 2017 Income Statement
Sales $ 16,549.00
Costs 5,690.00
Other expenses 1,353.00
Depreciation 2,376.00
EBIT $ 7,130.00
Interest 1,110.00
EBT $ 6,020.00
Taxes 1,264.20
Net income $ 4,755.80
Dividends $ 1,979.00
Addition to retained earnings 2,776.80

2018 Income Statement

Sales $ 18,498.00
Costs 6,731.00
Other expenses 1,178.00
Depreciation 2,484.00
EBIT $ 8,105.00
Interest 1,325.00
EBT $ 6,780.00
Taxes 1,423.80
Net income $ 5,356.20
Dividends $ 2,314.00
Addition to retained earnings 3,042.20
$ 6,269
1,674
$ 7,943

$ 29,060
$ 76,355
$ 113,358

$ 6,640
1,641
$ 8,281

$ 35,229
$ 78,691
$ 122,201
Chapter 2
Question 22

Input area:

2017 2018
Sales $ 16,549 $ 18,498
Depreciation 2,376 2,484
Cost of goods sold 5,690 6,731
Other expenses 1,353 1,178
Interest 1,110 1,325
Cash 8,676 9,247
Accounts receivable 11,488 13,482
Short-term notes payable 1,674 1,641
Long-term debt 29,060 35,229
Net fixed assets 72,770 77,610
Accounts payable 6,269 6,640
Inventory 20,424 21,862
Dividends 1,979 2,314

Tax rate 21% 21%

From Problem 25:

Owners' equity $ 76,355 $ 78,691

Output area:

2018 Income Statement

Sales $ 18,498.00
Costs 6,731.00
Other expenses 1,178.00
Depreciation 2,484.00
EBIT $ 8,105.00
Interest 1,325.00
EBT $ 6,780.00
Taxes 1,423.80
Net income $ 5,356.20
Dividends $ 2,314.00
Addition to retained earnings 3,042.20

Operating cash flow $ 9,165.20

Change in NWC 3,665.00
Net capital spending 7,324.00

Cash flow from assets $ (1,823.80)

Net new long-term debt $ 6,169.00

Cash flow to creditors $ (4,844.00)

Net new equity $ (706.20)

Cash flow to stockholders $ 3,020.20