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?
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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