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1.

Cash Flow Statement Drill Question


balance sheet
Net PP&E year 1 year 2
year 1: 234 B 234 35
year 2: 254 A 44 capex 120
S 24 depreciation 98
E 254 253

Retained Earnings
year 1: 82 B 82
year 2: 77 A 374 net income
S 379 dividends
E 77

OWC Calculations
year 1 year 2
a/r 120 134
inventory 98 112
a/p 100 123
tax pay 32 43
OWC 86 80

Cash Flow Statement


ni 374 CFF
dep 24 beginning cash 35
change owc 6 net cash flow 21
cfo 404 ending cash 56
cfi -44
-379 div
40 change lt debt
cff -339
ncf 21
4. Riley Scooters
OWC Calculations
WW XX net pp&e intangibles
inventory 60 80 B 180 B
other 100 120 A 40 capex A
a/r 10 10 S 60 deprec S
a/p -80 -90 E 160 E
tax -10 -12
80 108

Cash Flow Statement


ni 189
cfo -28
cff
7. Chrysler
OWC CFO CFI
WV XX ni 3720 chg ST inv -842
rec 14465 15000 owc -1036 capex -1971
inv 5195 6000 dep 2000 investment 94
other 1929 2000 other assets 14 -2719
acct accru 17845 18220 other liab 28
owc 3744 4780 4726
change -1036

PP&E
B 18829
A 1971 capex
S -2000 depr
E 18800

Retained Earnings
B 8829
A 3720 net inc
S 3549 div
E 9000
intangibles retained earnings
60 B 85
50 additions A 189 net income
60 amortization S 174 dividends
50 E 100
CFF Net Cash -1080
notes pay 786
LT debt current -498
LT debt 316
common 49
dividends -3549 OTHER WAY TO DO CFF--
treasury -191 revolver 1180
-3087 notes pay 786
LT debt current -498
LT debt 316
common 49
dividends -3549
treasury -191
-1907
"=cash - revolver"
1080 = cash - revolver
1. Mergers & Acquistions Drill Questions

Coltrane acquires 35% of Davis <-- Equity Method


Sources of Funds Use of Funds
Cash 20 share purchase 100
Equity 50 total use 100 <-- because bought for 100 as stated in instructions
LT Debt 30
Acquistion Price 100
balance sheet
Coltrane Davis Deal Changes Combined
cash 150 10 -20 130
ar 50 30 50
inv 40 20 40

ppe 200 150 200


goodwill 20 0 20
equity 0 0 100 100
total 460 210 460

ap 48 20 48
LT debt 120 58 30 150

common stock and110


APIC 75 50 160
re 182 57 182
total 460 210 460

2. Hooker purchased 25% of John Lee for 1500 in cash


income statement
hooker john lee deal change combined Equity Income
sales 53192 26595 53192 % ni 2100 25%
cogs 29256 15957 29256 existing equity inc 960
gross profit 23936 10638 23936 consoldiated equity income

sg&a 14894 5980 14894


amortz 1200 600 1200
oper profit 7842 4058 7842

equity inc 960 130 525 1485


int exp 480 1100 480
ebt 8322 3088 8847

tax exp 2580 988 2580


ni 5742 2100 6267

3. Dumbo Inc

Long Term Assets 42998 beg equ B 42998


Equity Income 2580 net inc A 2683.2 grow the equity income @ 4%
Equ Inc net of div rec 1806 dividends S 774 compute the dividends from given data
Equity Inc grow 4% per annum end equ E 44907.2
Flat Dividend
EX 1 - pay in all cash
Example - Melanie buys 100% of Pablo for 35 net assets = assets - liabilities
melanie pablo adj combined price 35
cash 100 20 -35 65 net assets ex GW 20
ar 50 5 50 deal gw 15
ppe 30 10 30
goodwill 200 5 10 210
total assets 380 40 355 to get adj goodwill:
get the gw of the deal by getting NAV - goodwill of
debt 150 10 150 subtract gw of acquired from deal
ap 30 5 30
equity 200 25 -25 175
total l&e 380 40 355

EX2 - 10 cash 10 debt 15 stock


cash 10 use of funds
debt 10 share purchase 35
stock 15 total use 35
total 35

melanie pablo adj combined net assets = assets - liabilities


cash 100 20 -10 90 price 35
ar 50 5 50 net assets ex GW 20
ppe 30 10 30 deal gw 15
goodwill 200 5 10 210
total assets 380 40 380

debt 150 10 10 160


ap 30 5 30
equity 200 25 -10 190 incr equity by 15 bc stock
total l&e 380 40 380 decr equity by existing target value 25

4. Company purchased for 2500 on dec 31 20xz


unrecoginzed brands worth 175
all other bs items are at fair value
purchase price - nav
NAV = assets - liab Goodwill 368.3
Assets: 7336
Minority 7.3
Liab: 5197
NAV 2131.7

5. Company purchased for 2500 on dec 31 20xx


unrecog brands worth 9650
bs items at fair value NAV = assets - liab

Tassets 120658 NAV 53817 original NAV


GW 62401 GW -8584 adjusted for gw
Unrecog 9650 Unrecog 1066 adjusted NAV
GW 1434
Tliab 66841

7. King Grocers acquires Gold Stores for 300


King grocers pay Gold shareholders 100 cash 100 share rest LT debt
source of funds use of funds
cash 100 share purchase 300
shares 100 total uses 300
LT debt 100 nav 132
purch price 300 nav exc gw 132
king gold change combined purchase 300
cash 150 10 -100 60 goodwill 168
ar 50 30 80
inv 40 20 60
ppe 200 150 350
gw 20 0 168 188
total 460 210 738

ap 48 20 68
lt debt 120 58 100 278

common 110 75 25 210


re 182 57 -57 182
total 460 210 738

14. Arstal purchased Mission for 120,000


source of funds 35% tax rate
new equity 56000 interest 5% debt
new debt 40000 interest 3% cash existing consolidated tax expense
cash 24000 32000 GW produced w deal astral tax 4300
price paid 120000 mission tax 1822
arstral mission change combined tax shield 700 amount of new debt issue *
sales 88654 53190 141844 interest income -252 get a lower taxable amount b
cogs 48760 26595 75355 consol tax exp 5170 to get the amount of int inco
gross profit 39894 26595 66489 basically getting the opportu

sg&a 24824 15960 40784


amortz 2000 1200 3200
op prof 13070 9435 22505

int income 1600 260 -720 1140


int exp 800 4000 2000 6800
ebt 13870 5695 16845

tax exp 4300 1822 -952 5170 the change here is the 2 tax shields --> loss in interest income
ni 9570 3873 11675

19. Nomat acquires 75% of Bongo for 300


sources of funds use of funds
equity 100 share purchase 300 goodwill
debt 100 total uses 300 equity & re of tgt percent 99
cash 100 noncontrolling 33
total 300 purch price 300
nomad bongo change combined total gw 201
cash 150 10 -100 60
ar 50 30 80
inv 40 20 60
ppe 200 150 350
gw 20 0 201 221
total 460 210 771

ap 48 20 68
lt debt 120 58 100 278

common 110 75 25 210


re 182 57 -57 182
non control 0 0 33 33
total 460 210 771

20. Matrix purchased 80% of Toucan for 52,000


source of funds
debt 20000 int on new debt 5%
cash reserves 32000 int on existing cash 3%
total 52000 26000 gw produced tax expense changes
mtr 35% debt exempt 1000 the amount of debt * interes
income exempt 960 the amount of cash * interes
arstral mission change combined total 1960 amount of income not subjec
sales 53192 26595 79787 686 deductable tax amount
cogs 29256 15957 45213
gross profit 23936 10638 34574

sg&a 14894 5980 20874


amortz 1200 600 1800
op prof 7842 4058 11900

int income 960 130 -960 130


int exp 480 1100 1000 2580
ebt 8322 3088 9450

tax exp 2580 988 -686 2882


ni 5742 2100 6568
noncontrol 0 0 420 420 noncontrolling is just the % not purchased of the target's net in
group profit 5742 2100 6148

Example - Non controlling interest


IS BS CF
nci 13.9 cash 256.9 ni 249
ni 249 Ret Erng 249 nci 13.9
nci 7.9 cfo 262.9
cff -6
CF 256.9
ated in instructions

525 1. how much am I acquiring


2. what kind of actg <-- equity method
1485 3. how much is targets ni (bc a certain % of that is yours -- but its not cash)

equity income @ 4%
he dividends from given data --> =equity income - equity income net of div
25

l by getting NAV - goodwill of acquired firm


ed from deal

g target value 25
amount of new debt issue * MTR
get a lower taxable amount because of loss of interest income
to get the amount of int income less you see how much cash youre spending and get the interest on cash
basically getting the opportunity cost

lds --> loss in interest income & debt


the amount of debt * interest
the amount of cash * interest
amount of income not subject to tax
deductable tax amount

urchased of the target's net income