Name : Sharon Rivani Martiza

NPM : C1B021023
Class : Management A 2021
Subject : Financial Management

ASSIGNMENT 1 – STUDY PROBLEMS

3–1. GMT Transport Company ended the year with record sales of $18 million. The
firm’s cost of goods sold totalled $10.8 million while its operating expenses (including
depreciation) totalled $4 million. GMT paid $1.5 million in interest expense and had an
income tax liability of $595,000. What is the firm’s net income for the year?
Answer:
Expenses = Operating expenses + Interest Expenses + Income tax liability
Net income = Sales revenue – Cost of goods sold – Expenses
= $18 million - $10.8 million – ($4 million + $1.5 million + $0.595)
= $18 million - $10.8 million – $6.095 million
= $1.105 million

The firm’s net income for the year is $1.105 million.

3-3. Solpro PLC has reported £800,000 in retained profit after paying £400,000 in
dividends. What are Solpro PLC’s earnings per share if the firm has 300,000 issued and
paid-up equity shares?
Answer:
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Earnings per share = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒

£800,000+ £400,000
= 300,000

£1,200,000
= 300,000

= £4.0

3–11. The Caraway Seed Company grows heirloom tomatoes and sells their seeds.
Heirloom tomato plants are preferred by many growers for their superior flavor. At the
end of the most recent year, the firm had current assets of $50,000, net fixed assets of
$250,000, current liabilities of $30,000, and long-term debt of $100,000.
a. Calculate Caraway’s stockholders’ equity.
Answer:
Total assets = Current assets + Fixed assets
= $50,000 + $250,000 = $300,000
 Total liabilities = Current liabilities + Long-term debt
= $30,000 + $100,000 = $130,000
Stockholders’ equity = Total assets – Total liabilities
= $300,000 - $130,000
= $270,000
b. What is the firm’s net working capital?
Answer:
Net working capital = Current assets – Current liabilities
= $50,000 - $30,000
= $20,000
c. If Caraway’s current liabilities consist of $20,000 in accounts payable and $10,000 in
short-term debt (notes payable), what is the firm’s net working capital?
Answer: The firm’s net working capital will not change.
Net working capital = $20,000
3–13. Prepare a balance sheet and income statement for TNT, Inc., from the following
scrambled list of items:

a. Prepare an income statement for TNT

Answer:
b. Prepare a balance sheet for TNT
Answer:

c. What can you say about the firm’s financial condition based on these financial
statements?
Answer: TNC, Inc. was profitable for the year. Equity was strong and closely divided
equally with the liabilities of the firm. Current assets provided excess capacity to service
the current (short-term) liabilities.

3–15. The cash flow statements for retailing giant BigBox, Inc., spanning the period
2013–2016 are as follows:
Answer the following questions using the information found in these statements:
a. Does BigBox generate positive cash flow from its operations?
Answer: BigBox has generated positive cash flow from its operations during the years
2013, 2014, 2015, and 2016.

b. How much did BigBox invest in new capital expenditures over these four years?
Answer: The new capital expenditures amount each year is the amount mentioned under
capital expenditures in cash flow from investing activities.
The capital expenditures are:
2013 = $12,300.00
2014 = $14,000.00
2015 = $14,500.00
2016 = $16,000.00
The new capital expenditures over these four years = $12,300 + $14,000 + $14,500 +
16,000 = $56,800

c. Describe BigBox’s sources of financing in the financial markets over these four
years.
Answer: BigBox's sources of financing in the financial markets over the period was
issuance of debt for the amount of = 4,100 + 4,000 – 100 + 1,500
BigBox's sources of financing in the financial markets over the period was issuance of
debt for the amount of = $9,500 million.

d. Based solely on the cash flow statements for 2013 through 2016, write a brief
narrative that describes the major activities of BigBox’s management team over
these four years.
Answer: BigBox's management team is spending on retirement of stock, payment of cash
dividends and incurring capital expenditure. They are financing this amount from issuing
the debts and from internally generated funds.
• Spending in retirement of stock during the period = $4,500 + 3,600 + 1,500 + 8,000 =
$17,600 million
• Spending in payment of dividends during the period = $2,200 + 2,500 + 2,800 +
3,600 = $11,100 million
• Spending in capital expenditure during the period = $12,300 + $14,000 + $14,500 +
16,000 = $56,800
• Cash generated through issuance of debts = $4,100 + 4,000 – 100 + 1,500= $9,500
million
• Cash generated from operating activities = $15,000 + 18,400 + 20,600 + 20,700 =
$74,700 million