Spring 2, 2012

Chapter 2. Ch 02 P14 Build a Model Except for charts and answers that must be written, only Excel formulas that use cell references or functions Numeric answers in cells will not be accepted.
a. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings. 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 Cumberland Industries (Thousands of dollars) Sales Revenue Expenses (excluding depreciation) as a percent of sales Net fixed assest Depr. as a % of net fixed assets Tax rate Interest expense Dividend Payout Ratio Cumberland Industries: Income Statement (Thousands of dollars) Sales Operating costs excluding depreciation EBITDA Depreciation (Cumberland has no amortization charges) EBIT Interest expense EBT Taxes (40%) Net income Common dividends Addition to retained earnings 2010 $455,000 85.0% $67,000 10.0% 40.0% $8,550 25% 2010 $455,000 $386,750 $68,250 $6,700 $61,550 $8,550 $53,000 $21,200 $31,800 $7,950 $23,850

b. Cumberland Industries' partial balance sheets are shown below. Cumberland issued $10,000,000 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 thousands of dollars) Cumberland Industries December 31 Balance Sheets (in thousands of dollars) 2010 Assets Cash and cash equivalents $91,450 2009 $74,625 $10,000

Short-term investments Accounts Receivable Inventories Total current assets Net fixed assets Total assets Liabilities and equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity Check for balancing (this should be zero): c. Construct the statement of cash flows for the most recent year. Statement of Cash Flows (in thousands of dollars) 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 long-term debt Due to change in notes payable 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

11,400 108,470 38,450 $249,770 67,000 $316,770

15,100 85,527 34,982 $210,234 42,436 $252,670

$30,761 30,405 12,717 $73,883 80,263 $154,146 $100,000 62,624 $162,624 $316,770

$23,109 22,656 14,217 $59,982 63,914 $123,896 $90,000 38,774 $128,774 $252,670

$31,800

$6,700 ($22,943) ($3,468) $7,652 $7,749 $27,490

($31,264) $3,700 ($27,564)

($1,500) $16,349 $10,000 ($7,950) $16,899 $16,825 $74,625

Cash balance at the end of the year

$91,450

at use cell references or functions will be accepted for credit.

depreciation) were equal to assets; interest expenses 25% of its net income out in te total dividends and the

. Using this data and the

,000,000 of new common missing values for common