Finansa

Chpater-4: Solutions to Problems
P4-1. Depreciation LG 1; Basic Depreciation Schedule Percentages Cost(1) from Table 4.2 (2) $17,000 $17,000 $17,000 $17,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 33% 45 15 7 20% 32 19 12 12 5 Depreciation [(1)  (2)] (3) $ 5,610 7,650 2,550 1,190 $ 9,000 14,400 8,550 5,400 5,400 2,250

Year Asset A 1 2 3 4 Asset B 1 2 3 4 5 6 P4-2. Depreciation LG 1;Basic

Depreciation Schedule Cork stopper machine Percentages Cost from Table 4.2 (1) (2) $10,000 33% $10,000 45 $10,000 15 $10,000 7

Year 1 2 3 4 P4-3.

Depreciation [(1)  (2)] (3) $ 3,300 4,500 1,500 7000

MACRS depreciation expense, taxes, and cash flow LG 1, 2; Challenge a. Depreciation expense  $80,000  0.20  $16,000 (MACRS depreciation percentages found on Table 4.2 in thetext.) b. New taxable income  $430,000  $16,000  $414,000 Tax liability  $113,900  [($414,000  $335,000)  0.34]  $113,900  $26,860  $140,760 Original tax liability before depreciation expense: Tax liability  $113,900  [($430,000  $335,000)  0.34]  $113,900  $32,300  $146,200
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Tax savings  $146,200  $140,760  $5,440 P4-4. Depreciation and accounting cash flow LG 1, 2;Intermediate a. Operating cash flow Sales revenue Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes Less: Taxes at 40% Net profit after taxes Plus: Depreciation Cash flow from operations b. P4-5.

$400,000 290,000 34,200 (= 0.19 x $180,000) $ 75,800 30,320 $ 45,480 34,200 $ 79,680

Depreciation and other noncash charges serve as a taxshield against income, increasing annual cash flow. Classifying inflows and outflows of cash LG 2; Basic Item Change ($) I/O O O I O O O Item Accounts receivable Net profits Depreciation Repurchase of stock Cash dividends Sale of stock Change ($) 700 600 100 600 800 1,000 I/O I I I O O I

Cash 100 Accounts 1,000 payable Notes payable 500 Long-term debt 2,000 Inventory 200 Fixed assets400

Note 1: Think of cash in terms of money in a checking account. Note 2: As a non-cash charge depreciation is not really an I/O at all, but it will be reported as a positive amount on the statement of cash flows. P4-6. P4-7. PROBLEM SET-1 ASSIGNMENT QUESTION Cash receipts LG 4; Basic April Sales Cash sales (0.50) Collections: Lag 1 month (0.25) Lag 2 months (0.25) Total cash receipts $65,000$32,500 May $60,000 $30,000 16,250 June $70,000 $35,000 15,000 16,250 $66,250 July $100,000 $ 50,000 17,500 15,000 $ 82,500 August $100,000 $ 50,000 25,000 17,500 $ 92,500
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P4-8.

Cash disbursement schedule LG 4; Basic February Sales Disbursements Purchases (0.60) Cash 1-month delay (0.50) 2-month delay (0.40) Rent Wages & salary Fixed Variable Taxes Fixed assets Interest Cash dividends TotalDisbursements $500,000 $300,000 March $500,000 $336,000 April $560,000 $366,000 36,600 168,000 120,000 8,000 6,000 39,200 75,000 30,000 12,500 $465,300 $413,100 $524,400 May $610,000 $390,000 39,000 183,000 134,400 8,000 6,000 42,700 June $650,000 $390,000 39,000 195,000 146,400 8,000 6,000 45,500 54,500 July $650,000

P4-9.

Cash budget—basic LG 4; Intermediate March Sales Cash sales (0.20)Lag 1 month (0.60) Lag 2 months (0.20) Other income Total cash receipts Disbursements Purchases Rent Wages & salaries Dividends Principal & interest Purchase of new equipment Taxes due Total cash disbursements $50,000 $10,000 April $60,000 $12,000 May $70,000 $14,000 36,000 10,000 2,000 $62,000 $50,000 3,000 6,000 June $80,000 $16,000 42,000 12,000 2,000 $72,000 $70,000 3,000 7,000 3,000 4,0006,000 $93,000 July $100,000 $ 20,000 48,000 14,000 2,000 $ 84,000 $ 80,000 3,000 8,000

6,000 $59,000 $97,000

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Total cash receipts Total cash disbursements Net cash flow Add: Beginning cash Ending cash Minimum cash Required total financing (notes payable) Excess cash balance (marketable securities)

$62,000 59,000 $ 3,000 5,000 $ 8,000 5,000

$72,000 93,000 ($21,000) 8,000 ($13,000)...