# Abc’s ebit is \$9 million

Question 1

1. ABC’s EBIT is \$9 million. The depreciation expense is \$0.5 million and interest expense is \$0.5 million. The corporate tax rate is 30%. The company has 12 million in operating current assets and \$6 million operating current liabilities. It has \$5 million in net plant and equipment. The after-tax cost of capital (WACC) is 15%. Assume that the only non-cash item is depreciation. The total net operating capital last year was \$8 million.

What was the company’s free cash flow for the year?

### Question 2

1.       Based on the following information, Compute the transfer to Retained Earnings for Year 2006. Assume a tax rate of 34%.

 Year 2006 Sales \$4800 Depreciation 577 COGS 1582 Other Expenses 580 Interest 769 Cash 2107 A/R 2789 Short-term Notes Payable 407 Long-term Debt 7056 Net Fixed Assets 17669 A/P 2213 Inventory 4959 Dividends 612
1.

3.       Note: Enter your answer rounded off to two decimal points. Do not enter \$ in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

### Question 4

1.       An investor recently purchased a corporate bond that yields 9.3%. The investor is in the 31% combined federal and state tax bracket. What is the bond’s after-tax yield?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

### Question 5

1.       ABC Inc. recently reported net income of \$3,022 and depreciation of \$522. What is the net cash flow?

### Question 6

1.       ABC recently reported \$40,987 of sales, \$16,382of operating costs other than depreciation, and \$5,770 of depreciation.  The company had no amortization charges and no non-operating income.  It had \$8,000 of bonds outstanding that carry a 5% interest rate. How much was the firm’s taxable income, or earnings before taxes (EBT)?

Hint: Interest rate = Bonds outstanding * interest rate

### Question 9

1.       ABC corporation has operating income of \$29,706. The company’s depreciation expense is \$8,422. The company is all equity-financed and it faces a tax rate of 36%. What is the company’s net cash flow?

### Question 11

1.       ABC Corporation had \$80,019 of taxable income. Compute the tax liability.

### Question 16

1.       ABC company had a taxable income of \$203,601 from operations after all operating costs but before interest charges of \$55,191, dividends received of \$75,093, dividends paid of \$5,000, and income taxes. What is the firm’s income tax liability?

Hint: use the tax table to compute taxes.

### Question 17

1.       ABC company had a taxable income of \$588,645 from operations after all operating costs but before interest charges of \$58,760, dividends received of \$56,349, dividends paid of \$10,000, and income taxes. What is the firm’s income tax liability?

Hint: use the tax table to compute taxes.

### Question 18

1.       ABC company had a taxable income of \$560,840 from operations after all operating costs but before interest charges of \$56,242, dividends received of \$64,389, dividends paid of \$10,000, and income taxes. What is the firm’s after-tax income?

Hint: first use the tax table to compute taxes before calculating the after-tax income.

### Question 22

1.       During 2007, ABC had sales of \$79,365. Cost of goods sold, administrative expenses and selling expenses, and depreciation expenses were \$23,155, \$6,006, and \$10,304, respectively. In addition, the company had an interest expense of \$4,131, and a tax rate of 38%. The company paid\$8,914 as dividends. If the retained earnings is 2006 were \$59,011, what are the retained earnings in 2007?

### Question 23

1.       Corporate Bonds issued by ABC Corporation currently issued 10.8%. Municipal Bonds of equal risk currently yield 6.3%. At what tax rate would an investor be indifferent between these two bonds?

### Question 24

1.       Calculate the shareholders’ equity from the given information:

 Cash \$2,155 A/R \$3,142 Notes Payable \$382 Long-term Debt \$8,232 Net Fixed Assets \$18,091 A/P \$2,146 Inventory \$5,096

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