8. Assume South Sea Baubles, Inc. (the company in the prior question) neither is
ID: 2735485 • Letter: 8
Question
8. Assume South Sea Baubles, Inc. (the company in the prior question) neither issued nor retired any shares in 2014 and that its current portion of long-term debt remained unchanged in 2014 relative to the prior year. Construct SSB’s cash flow statement and answer the following:
a) What were SSB’s net cash flows from operations for 2014?
b) What were SSM’s net cash flows from investment activities in 2014?
c) What were SSB’s net cash flows from financing activities in 2014?
9. Butterfly Tractors had $14 million in sales last year. Cost of goods sold was $8 million, depreciation expense was $2 million, interest payment on outstanding debt was $1 million, and the firm’s tax rate was 35%. a) What were the firm’s net income and net cash flows from operations? Assume no change in net working capital. b) What would happen to the firm’s net income and cash flows from operations if, by accelerating depreciation expense, the firm had been able to increase it depreciation expense by $1 million? c) Knowing that shareholders preference for cash, would you expect the two changes you identified in b) to have a positive or negative impact on the company’s stock price? d) What would be the impact on net income if depreciation was $1 million and interest expense was $2 million? e) What would be the impact on cash if depreciation was $1 million and interest expense was $2 million?
Explanation / Answer
9.
Sales 14000000 Less:COGS 8000000 Gross Profit 6000000 Less:Depreciation 2000000 Interest Expense on Debt 1000000 Income before tax 3000000 Income Tax @ 35% 1050000 Net Income after tax 1950000 a) Net Income after tax 1950000 Net Cash flows from operations Net Income after tax 1950000 Add back: Non-cash expense-Depn. 2000000 Net Cash flows from operations 3950000Related Questions
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