Question

Use the following information to answer questions 1-8 Consider the following abbreviated financial statements for Xinghua:...

Use the following information to answer questions 1-8 Consider the following abbreviated financial statements for Xinghua: XINGHUA 2014 and 2015 Partial Balance Sheets Assets Liabilities and Owners’ Equity 2014 2015 2014 2015 Current assets $ 924 $ 1,002 Current liabilities $ 370 $ 428 Net fixed assets 3,917 4,556 Long-term debt 2,006 2,142 Equity 2,465 2,988 XINGHUA 2015 Income Statement Sales $11,295 Costs 5,535 Depreciation 1,020 Interest paid 180 The tax rate is 35%. Long term debt trades at 128% of par. The firm has 500 shares outstanding. Free Cash Flow to the Firm and the Free Cash Flow to Equity are both expected to grow at 2% forever. The weighted average cost of capital is 16%. The cost of equity is 24%.

1. What is the change in net working capital for 2015? $_______

2. What is the change in gross fixed assets, i.e. capital expenditures, for 2015? $______

3. What is the Net Income for 2015? $______

4. What is the Free Cash Flow to the Firm for 2015? $_______   

5. What is the Value of the Firm (Assets)? $______

6. What is the stock price per share using the discounted FCFF valuation? $______

7. What is the Free Cash Flow to Equity for 2015? $______

8. What is the stock price per share using the discounted FCFE valuation?

Homework Answers

Answer #1
Year Current Assets Current Liabilities Net Working Capital = Current Assets - Current Liabilties
2014 924 370 554
2015 1002 428 574

Change in net working capital = 574 - 554 = 20

2. Change in Gross fixed assets = Net fixed assets of 2015 + Depreciation for 2015 - Net fixed assets of 2014

= 4556 + 1020 - 3917

= $1659

3.

Particulars Amount
A Sales 11295
B Costs 5535
C Depreciation 1020
D Earnings Before Interest & Tax ( A -B -C) 4740
E Interest 180
F Profit Before Tax (D - E) 4560
G Tax @ 35% 1596
H Net Income (F - G) 2964

Net Income for 2015 = $2,964

4. Free Cash Flow to the firm = EBIT ( 1- t) - Increase in working capital - capital expenditures

= 4740 ( 1 - 0.35) - 20 - 1659

=  3081 - 20 - 1659

= $1402

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