02problem 4/18/2023 4:45 6/1/2010

Chapter 2. Solution to End-of-Chapter Comprehensive/Spreadsheet ProblemProblem 2-13

Sinotronics December 31 Balance Sheets(in thousands of dollars)

2008 2007AssetsCash and cash equivalents $ 102,850 $ 89,725 Accounts receivable 103,365 85,527 Inventories 38,444 34,982 Total current assets $ 244,659 $ 210,234 Net fixed assets 67,165 42,436 Total assets $ 311,824 $ 252,670

Liabilities and equityAccounts payable $ 30,761 $ 23,109 Accruals 30,477 22,656 Notes payable 16,717 14,217 Total current liabilities $ 77,955 $ 59,982 Long-term debt 76,264 63,914 Total liabilities $ 154,219 $ 123,896 Common stock 100,000 90,000 Retained Earnings 57,605 38,774 Total common equity $ 157,605 $ 128,774 Total liabilities and equity $ 311,824 $ 252,670

a. Sales for 2008 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization amounted to 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Sinotronics pays 40% of its net income in dividends. Given this information, construct Sinotronics’ 2008 income statement.

The input information required for the problem is outlined in the "Key Input Data" section below. Usingthis data and the balance sheet above, we constructed the income statement shown below.

KEY INPUT DATA: Laiho Industries

Sales $455,150EBITDA as a percentage of sales 15%Depr. as a % of fixed assets 11%Tax rate 40%Interest expense $8,575Dividend payout ratio 40%

A B C D E F G12

3

4

56789101112131415161718192021222324252627282930313233343536373839404142434445

Sinotronics Income Statement(in thousands of dollars)

2008Sales $455,150Expenses excluding depreciation and amortization 386,878 Found after finding EBITDA EBITDA $68,273 Found this first Depreciation and amortization 7,388 EBIT $60,884Interest expense 8,575 EBT $52,309Taxes (40%) 20,924 Net Income $31,386

Common dividends $12,554Addition to retained earnings $18,831

b. Construct the statement of stockholders' equity for the year ending December 31, 2008, and the 2008 statement of cash flows.

Statement of Stockholders' Equity(in thousands of dollars)

Balance of Retained Earnings, December 31, 2007 $38,774 Add: Net Income, 2008 $31,386 Less: Common dividends paid, 2008 (12,554)Balance of Retained Earnings, December 31, 2008 $57,605

A B C D E F G464748495051525354555657585960616263646566676869707172

Statement of Cash Flows(in thousands of dollars)

Operating ActivitiesNet Income $31,386 Depreciation and amortization 7,388 Increase in accounts payable 7,652 Increase in accruals 7,821 Increase in accounts receivable (17,838) Increase in inventories (3,462)Net cash provided by operating activities $32,947

Investing Activities Additions to property, plant, and equipment ($32,117)Net cash used in investing activities ($32,117)

Financing Activities Increase in notes payable $2,500 Increase in long-term debt 12,350 Increase in common stock 10,000 Payment of common dividends (12,554)Net cash provided by financing activities $12,295

SummaryNet increase/decrease in cash $13,125Cash balance at the beginning of the year 89,725Cash balance at the end of the year $102,850

c. Calculate 2007 and 2008 net working capital and 2008 free cash flow.

Net Working Capital (must be financed by external sources)

current assets - (A/P and accruals)

$210,234 - $45,765

$164,469

current assets - (A/P and accruals)

$244,659 - $61,238

$183,421

Free Cash Flow

EBIT (1 - T) + Depreciation - +

$36,531 + $7,388 - $32,117 +

-$7,150

NWC07 =

NWC07 =

NWC07 =

NWC08 =

NWC08 =

NWC08 =

FCF08 =Capital expenditures

FCF08 =

FCF08 =

A B C D E F G737475767778798081828384858687888990919293949596979899100101102103104

105

106107108

109

110111112

113

114

115116

d. If Sinotronics increased its dividend payout ratio, what effect would this have on its corporate taxes paid? What effect would this have on the taxes paid by the company's shareholders?

An increase in the firm's dividend payout ratio would have no effect on its corporate taxes paid becausedividends are paid with after-tax dollars. However, the company's shareholders would pay additionaltaxes on the additional dividends they would receive. As of 10/08, dividends are generally taxed at a maximum rate of 15% in the United States.

A B C D E F G117118119120121122123

6/1/2010

a. Sales for 2008 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and

rate was 40%, and Sinotronics pays 40% of its net income in dividends. Given this information,

The input information required for the problem is outlined in the "Key Input Data" section below. Using

H12

3

4

56789101112131415161718192021222324252627282930313233343536373839404142434445

Found after finding EBITDA

H464748495051525354555657585960616263646566676869707172

$18,952

Increase in NWC

H737475767778798081828384858687888990919293949596979899100101102103104

105

106107108

109

110111112

113

114

115116

d. If Sinotronics increased its dividend payout ratio, what effect would this have on its corporate taxes paid?

An increase in the firm's dividend payout ratio would have no effect on its corporate taxes paid becausedividends are paid with after-tax dollars. However, the company's shareholders would pay additionaltaxes on the additional dividends they would receive. As of 10/08, dividends are generally taxed at a

H117118119120121122123