Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $215,000; Costs...

Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $215,000; Costs = $104,000; Other expenses = $5,800; Depreciation expense = $9,000; Interest expense = $14,000; Taxes = $28,770; Dividends = $9,900. In addition, you're told that the firm issued $8,000 in new equity during 2018 and redeemed $9,600 in outstanding long-term debt.

What is the 2018 cash flow to stockholders?

If net fixed assets increased by $27,000 during the year, what was the addition to NWC?

Bishop, Inc., is obligated to pay its creditors $7,400 during the year.

a.	What is the market value of the shareholders' equity if assets have a market value of $10,200?

What if assets equal $6,500?

Solutions

Expert Solution

a. Cash flow to stockholders = dividends - new equity issued

Cash flow to stockholders = 9900 - 8000

Cash flow to stockholders = $1900

b. Cash flow from assets = cash flow to creditors + cash flow to stockholders

Cash flow from assets = 14000 + 9600 + 1900

Cash flow from assets = $25500

Cash flow from assets = Operating cash flow - change in NWC - net capital spending

Cash flow from assets = 215000 - 104000 - 5800 - 28770 - change in NWC - 9000 - 27000

25500 = 40430 - change in NWC

Change in NWC = 14930 Option 1

a. market value of stockholders' equity = Assets - creditors

market value of stockholders' equity = 10200 - 7400

market value of stockholders' equity = 2800

b. market value of stockholders' equity = Assets - creditors

market value of stockholders' equity = 6500 - 7400

market value of stockholders' equity = -900 (it means the equity has negative value or the firm is in bankruptcy situation)

Please comment if you face any difficulty and please don't forget to provide positive rating

jeff jeffy answered 1 year ago

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