6. Use the attached financial statements to compute (a) the cash flow from asset
ID: 2727898 • Letter: 6
Question
6. Use the attached financial statements to compute
(a)
the cash flow from assets and its 3 components,
(b)
the cash flow to creditors/bondholders and its 2 components,
(c)
the cash flow to stockholders and its 2 components
for LEE Corporation for the fiscal year of 2014.
7. Use the attached financial statements to compute the external funds needed (EFN) for the fiscal year of 2015 using the pro forma statement approach. Assume that the percentages of sales for cost of goods sold, current assets and current liabilities remain unchanged at their respective values in 2014. In addition, the dividend payout ratio is assumed to remain unchanged. It is also assumed that the plant capacity of LEE Corporation was underutilized in 2014 such that existing fixed assets can support the 15% projected growth rate in the sales level for 2015.
LEE Corporation (Problems #6 & #7)
Income Statement (in millions)
2014
Net Sales
$ 1,800
Cost of Goods Sold
$ 1,080
Depreciation Expenses
$ 180
Earnings Before Interest and Taxes
$ 540
Interest Expenses
$ 120
Taxable Income
$ 420
Taxes (34%)
$ 143
Net Income
$ 277
Dividends Paid
$ 83
Balance Sheet (in millions)
2013
2014
Current Assets
$ 536
$ 540
Net Fixed Assets
$ 2,164
$ 2,160
Total Assets
$ 2,700
$ 2,700
Current Liabilities
$ 980
$ 900
Long-term Debt
$ 278
$ 180
Common Stock & Paid-in Capital
$ 700
$ 684
Retained Earnings
$ 742
$ 936
Total Liabilities and Equity
$ 2,700
$ 2,700
(a)
the cash flow from assets and its 3 components,
(b)
the cash flow to creditors/bondholders and its 2 components,
(c)
the cash flow to stockholders and its 2 components
Explanation / Answer
6)
a) Cash flow from assets and its three components (for 2014)
- Additions to NWC
Operating cash flow = EBIT + Depreciation - Taxes = 540 + 180 -143 = 577
= 2160 - 2164 + 180 = 176
Additions to NWC = Ending NWC - Beginning NWC = - 360 - (-444) = 84
Therefore, cash flow from assets = 577 + 176 + 84 = 837
b) Cash flow to creditors/bond holders and its 2 components:
Interest paid = net new borrowing = 120 - (180-278) = 218
c) Cash flow to stock holders and its 2 components:
Dividend paid - net new equity raised = 83 + 16 = 99
7) No external funds are needed as per the proforma statements worked out for 2015:
Cash Flow from Assets = Operating Cash Flow - Capital Spending- Additions to NWC
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.