FINANCIAL MANAGEMENT Week 1 Assignment

Question

Build a Model26/11/2018 Chapter:2 Problem:20 a. Britton String Corp. manufactures specialty strings for musical instruments and tennis racquets. Its most recent sales were $880 million; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $300 million; depreciation amounted to 10% of net fixed assets; interest expenses were $22 million; the state-plus-federal corporate tax rate was 25%; and it paid 40% of its net income out in dividends. Given this information, construct its income statement. Also calculate total dividends and the addition to retained earnings. Report all dollar figures in millions. The input information required for the problem is outlined in the "Key Input Data" section below. Using this data and the balance sheet above, we constructed the income statement shown below. Key Input Data for Britton String Corp.2020 (Millions of dollars) Sales Revenue$880 Expenses (excluding depreciation) as a percent of sales85.0% Net fixed assets$300 Depr. as a % of net fixed assets10.0% Tax rate25.0% Interest expense$22 Dividend Payout Ratio40% Britton String Corp.: Income Statement2020 (Millions of dollars) Sales Operating costs excluding depreciation EBITDA Depreciation (Cumberland has no amortization charges) EBIT Interest expense EBT Taxes (25%) Net income Common dividends Addition to retained earnings b. Britton String’s partial balance sheets follow. Britton issued $36 million of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity. Dollar value of common stock issued (in millions of dollars)$36 Britton String Corp: December 31 Balance Sheets (Millions of dollars) 20202019 Assets Cash and cash equivalents$70$60 Short-term investments$46$42 Accounts Receivable$120$140 Inventories$264$196 Total current assets$500$438 Net fixed assets$300$262 Total assets$800$700 Liabilities and equity Accounts payable$73$64 Accruals$49$60 Notes payable$30$39 Total current liabilities$152$163 Long-term debt$217$178 Total liabilities$369$341 Common stock$249 Retained earnings$110 Total common equity$359 Total liabilities and equity$700 Always check for balancing (these should be zero):$800.0000$0.0000 c. Construct the statement of cash flows for the most recent year. Statement of Cash Flows (in thousands of dollars) 2020 Operating Activities Net Income Adjustments: Noncash adjustment: Depreciation Due to changes in working capital: Due to change in accounts receivable Due to change in inventories Due to change in accounts payable Due to change in accruals Net cash provided (used) by operating activities Investing Activities Cash used to acquire gross fixed assets Due to change in short-term investments Net cash provided (used) by investing activities Financing Activities Due to change in notes payable Due to change in long-term debt Due to change in common stock Payment of common dividends Net cash provided (used) by financing activities Net increase/decrease in cash Add: Cash balance at the beginning of the year Cash balance at the end of the year Check: cash balance in statement of cash flows should equal the cash on balance sheets; this value should be zero:$70.000