# Bfin

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Solutions for Selected Problems in Chapter 2 1. To find owner’s equity, we must construct a balance sheet as follows: Balance Sheet CA \$5,100 CL \$4,300 NFA 23,800 LTD 7,400 OE ?? TA \$28,900 TL & OE \$28,900 We know that total liabilities and owner’s equity (TL & OE) must equal total assets of \$28,900. We also know that TL & OE is equal to current liabilities plus long-term debt plus owner’s equity, so owner’s equity is: OE = \$28,900 – 7,400 – 4,300 = \$17,200 NWC = CA – CL = \$5,100 – 4,300 = \$800 5. To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for current assets, we get:
CA = NWC + CL = \$380,000 + 1,400,000 = \$1,480,000 The market value of current assets and fixed assets is given, so: Book value CA = \$1,480,000 Market value CA = \$1,600,000 Book value NFA = \$3,700,000 Market value NFA = \$4,900,000 Book value assets = \$5,180,000 Market value assets = \$6,500,000 11. Cash flow to creditors = Interest paid – Net new borrowing Cash flow to creditors = Interest paid – (LTDend – LTDbeg) Cash flow to creditors = \$170,000 – (\$2,900,000 – 2,600,000) Cash flow to creditors = –\$130,000 12. Cash flow to stockholders = Dividends paid – Net new equity Cash flow to stockholders = Dividends paid – [(Commonend + APISend) – (Commonbeg + APISbeg)] Cash flow to stockholders = \$490,000 – [(\$815,000 + 5,500,000) – (\$740,000 + 5,200,000)] Cash flow to stockholders = \$115,000 Note, APIS is the additional paid-in surplus. 14. To find the OCF, we first calculate net income. Income Statement Sales \$196,000 Costs 104,000 Other expenses 6,800 Depreciation 9,100 EBIT \$76,100 Interest 14,800…...

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