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South Sea Baubles has the following (incomplete) balance sheet and income statement. BALANCE SHEET AT END...

South Sea Baubles has the following (incomplete) balance sheet and income statement.

BALANCE SHEET AT END OF YEAR
(Figures in $ millions)
Assets 2015 2016 Liabilities and Shareholders' Equity 2015 2016
Current assets $ 96 $ 170 Current liabilities $ 62 $ 78
Net fixed assets 860 960 Long-term debt 630 810
INCOME STATEMENT, 2016
(Figures in $ millions)
Revenue $ 1,980
Cost of goods sold 1,060
Depreciation 380
Interest expense 246

a&b. What is shareholders’ equity in 2015 and 2016? (Enter your answers in millions.)

a. 2015?

b. 2016?

c&d. What is net working capital in 2015 and 2016? (Enter your answers in millions.)

C. 2015?

d. 2016?

e. What are taxes paid in 2016? Assume the firm pays taxes equal to 35% of taxable income. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

f. What is cash provided by operations during 2016? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

g. Net fixed assets increased from $860 million to $960 million during 2016. What must have been South Sea’s gross investment in fixed assets during 2016? (Enter your answer in millions.)

Solutions

Expert Solution

a&b :

the balance sheet is diplaying figures of total assets ,liabilities.

as we all know

equity = assets - liabilities

so in 2015 we have:

assets = $956

liabilities = $692

so the equity is = $264

in the year 2015,

assets = $1130

liabilities = $880,000,000

so the equity is $250,000,000.

c&d : the net working capital = ASSETS - LIABILITIES

IN YEAR 2015 = 96 - 62 = $34,000,000

IN THE YEAR 2016 = 170 -78 = 92,000,000.

E&F : the taxes paid on the taxable income will be :

REVENUE = $1908

COGS = $1080

GROSS PROFIT = 920

LESS DEPRECIATION =380

EBIT = $540

INTEREST EXPENSE = $246

EBT (TAXABLE INCOME ) =$294

THE TAX RATE IS 35%

SO THE TAXES PAID WILL BE $102.9 MILLION OR 103,000,000.

F. CASH FROM OPERATIONS IN THE YEAR 2016 IS:

NET INCOME IS = EBT - TAXES

= $191.1

SO OPERATING CASH FLOW = EBIT (1 - TAX RATE ) + DEPRECIATION - CHANGES IN WORKING CAPITAL

= 540 (0.65 ) + 380 - 58

= 351 + 380 -58 = $673

NOTE : THE CHANGE IN WORKING CAPITAL = INVESTMENT IN WORKING CAPITAL OF 92(2016)-34(2015) = 58 IN THE YEAR 2016.

G. NET FIXED ASETS = GROSS FIXED ASSETS - ACCUMULATED DEPRECIATION

THE NET FIXED ASSETS INCREASED BY $100

SO THE GROSS INVESTMENT IS = 100 + 380 ( DEPRECIATION IN THE YEAR 2016 )

= $480,000,000


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